Abstract
AbstractPairs trading is a typical example of a convergence trading strategy. Investors buy relatively under-priced assets simultaneously, and sell relatively over-priced assets to exploit temporary mispricing. This study examines optimal pairs trading strategies under symmetric and non-symmetric trading constraints. Under the assumption that the price spread of a pair of correlated securities follows a mean-reverting Ornstein-Uhlenbeck(OU) process, analytical trading strategies are obtained under a mean-variance(MV) framework. Model estimation and empirical studies on trading strategies have been conducted using data on pairs of stocks and futures traded on China’s securities market. These results indicate that pairs trading strategies have fairly good performance.
Funder
Research Grants Council of Hong Kong
National Natural Science Foundation of China
IMR and RAE Research Fund, Faculty of Science, University of Hong Kong
Fundamental Research Funds for the Central Universities
Seed Funding for Basic Research, Seed Funding of HKU-TCL Joint Research Centre for Artificial Intelligence
Publisher
Springer Science and Business Media LLC
Subject
Management Science and Operations Research,General Mathematics,Software
Cited by
4 articles.
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