Dynamic pairs trading using the stochastic control approach

Tourin, Agnès; Yan, Raphael

doi:10.1016/j.jedc.2013.05.010

Cited by 82 publications

(50 citation statements)

References 8 publications

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“….) and can be divided into three main categories: Moura, 2013;Tourin and Yan, 2013;Li et al, 2014;Huck and Afawubo, 2015); • Combined forecasts and multi-criteria decision methods (Huck, 2010).…”

Section: Introductionmentioning

confidence: 99%

Pairs trading: does volatility timing matter?

Huck¹

2015

Applied Economics

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online novembre 2014 compté en 2014International audiencePairs trading is a dollar-neutral trading strategy. Using the components of two major stock indices, the S&P 500 and the Nikkei 225, this article deals with the performance of a pairs trading system based on various pairs selection methods (distance, stationarity, cointegration) over a 10-year period. On both markets, using a classical framework, cointegration appears superior and effective. On the U.S. market and also in Japan to a lower extent, pairs trading strategies exhibited an impressive performance during the 2008 financial crisis. Bearish periods are associated with a high level of the VIX index: the ‘investor fear gauge’. Using a modified trading system, this article examines the link between pairs trading performance and volatility/VIX timing. It is shown that for the best selection technique (cointegration), timing volatility has no economic value in a pairs trading context

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Section: Introductionmentioning

confidence: 99%

Pairs trading: does volatility timing matter?

Huck¹

2015

Applied Economics

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“…Schmidt [23] uses 5 years of daily stock prices from July 2002 for 17 financial stocks listed on the ASX200, and employs the Johansen test proposed in [19] for cointegration to select trading pairs within a pairs trading framework. Tourin and Yan [28] propose a model for analyzing dynamic pairs trading strategies. The model is explored in an optimal portfolio setting where the portfolio consists of a cash account and two cointegrated stocks.…”

Section: Trading Rulesmentioning

confidence: 99%

An empirical study on the threshold cointegration of Chinese A and H cross-listed shares

Chen

Zhu

2015

Journal of Applied Statistics

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We investigate the dynamic relationship between the prices of Chinese A and H market cross-listed shares using the Enders-Siklos threshold cointegration approach. Our data are the daily closing prices of the Hang Seng China AH (A) index and the Hang Seng China AH (H) index from 4 January 2006 to 1 November 2013. We find a threshold cointegration between these two indices, instead of the linear cointegration well established in the literature. The short-term adjustment to the equilibrium shows an asymmetric effect according to the price deviation from the equilibrium. Moreover, using a Granger causality test, we find a bi-directional causality between these two markets, indicating a close relationship between them. A pairs trading rule, based on the estimated threshold cointegration model, demonstrates the usefulness of our results as it generates a significantly higher return than a naive buy-and-hold trading rule.

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“…Using data from the Finnish stock market over the period 1987-2008, authors found pairs trading to be profitable even after allowing for a one day delay in the trade initiation after the signal. Tourin and Yan [13] proposed a model for analyzing dynamic pairs trading strategies using the stochastic control approach. The model was explored in an optimal portfolio setting, where the portfolio consisted of a bank account and two co-integrated stocks and the objective was to maximize for a fixed time horizon, the expected terminal utility of wealth.…”

Section: Introductionmentioning

confidence: 99%

High frequency trading regarding trade in goods of agricultural origin

Sporysz¹,

Matušek²,

Fitowski³

2017

MERAA

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This work presents the usage model in high frequency trading mechanisms concerning goods of agricultural origin. The aim of this study is to verify this type of solution on the basis of historical data covering the period from Options varying in both the horizon and the time interval have been considered. The best results have been achieved with respect to the historical time horizon for appointing the benchmark proportion of securities and exceeding one day, as well as one-minute time interval. It is worth emphasizing that the investment issue constitutes a very complex problem influenced by a large number of factors. Owing to this fact, no universal mode of conduct guaranteeing profits may be unequivocally indicated. It is possible only to define a scenario, which shall prove effective with a substantial degree of probability.

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Dynamic pairs trading using the stochastic control approach

Cited by 82 publications

References 8 publications

Pairs trading: does volatility timing matter?

Pairs trading: does volatility timing matter?

An empirical study on the threshold cointegration of Chinese A and H cross-listed shares

High frequency trading regarding trade in goods of agricultural origin

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