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DOI:10.1057/JDHF.2013.1 - Corpus ID: 73592157
@article{Liew2013PairsTA, title={Pairs trading: A copula approach}, author={Rong Qi Liew and Yuan Wu}, journal={Journal of Derivatives \& Hedge Funds}, year={2013}, volume={19}, pages={12-30}, url={https://api.semanticscholar.org/CorpusID:73592157}}- Rong Qi Liew, Yuan Wu
- Published 21 February 2013
- Economics, Business, Mathematics
- Journal of Derivatives & Hedge Funds
Pairs trading is a technique that is widely practiced in the financial industry. Its relevance has been constantly tested with updated samples, and its profitability is acknowledged among practitioners and academics. Yet in pairs trading, the notion of correlation is central, and the use of correlation or cointegration as a measure of dependency is ultimately its Achilles’ heel. To overcome this limitation, this article employs the use of copulas, which is much more realistic and robust, to…
54 Citations
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54 Citations
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- 2014
Mathematics, Economics
This dissertation aims to investigate if copulas can improve the profitability of pairs trading by using them by comparing results of cointegration and distance methods against results of copulas using the distance method.
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- Toh Zhao ZhiXie WenjunWu YuanXiang Liming
- 2017
Mathematics, Economics
Empirical results show that the proposed Dynamic Copula framework for pairs trading yields more robust performance as compared to the conventional method and the Copula Method.
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- Ekin TokatAhmet Cevdet Hayrullahoğlu
- 2021
Economics, Business
Borsa Istanbul Review
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- Wenjun XieRong Qi LiewYuan WuXi Zou
- 2016
Economics, Business
The Journal of Trading
Pairs trading is a well-known speculative investment strategy, with the distance method the most commonly implemented variation. However, the profitability of this approach has decreased in recent…
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- G. Stocks
- 2016
Economics, Business
Pairs trading is an often deployed trading strategy by hedge funds which exploits relative mispricing within two assets. In the present thesis, we empirically evaluate several copulabased pairs…
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- Wenjun XieYuan Wu
- 2013
Mathematics, Business
This paper proposes an alternative approach for pairs trading using copula technique that can capture the dependency structure of co-movement between the stocks and is more robust and accurate.
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- C. Krauss
- 2017
Mathematics, Business
This survey reviews the growing literature on pairs trading frameworks, i.e., relative-value arbitrage strategies involving two or more securities. The available research is categorized into five…
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- Mads Hofstedt Jæger
- 2016
Economics
This article implements the pairs trading algorithm by Gatev et al. (2006) on recent data on the S&P 500 Index. The finding is that this version of the pairs trading strategy have become…
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Economics, Business
Finance Research Letters
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Economics, Business
We perform an extensive and robust study of the performance of three different pairs trading strategies - the distance, cointegration, and copula methods - on the entire US equity market from 1962 to…
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16 References
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Economics, Business
Despite confirming the continuing downward trend in profitability of pairs trading, this study found that the strategy performs strongly during periods of prolonged turbulence, including the recent…
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Economics, Business
Pairs-trading is a popular trading strategy that tries to take advantage of market inefficiencies in order to obtain profit. The idea is simple: find two stocks that move together and take long/short…
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This paper uses cointegration principles to develop a procedure that embeds a minimum profit condition within a pairs trading strategy and shows that, at reasonable minimum profit levels, the protocol does not greatly reduce trade numbers or absolute profits relative to an unprotected trading strategy.
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The relative value arbitrage rule, also known as “pairs trading” or “statistical arbitrage”, is a well established speculative investment strategy on financial markets, dating back to the 1980s.…
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Economics, Business
We test a Wall Street investment strategy known as "pairs trading" with daily data over the period 1962 through 1997. Stocks are matched into pairs according to minimum distance in historical…
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Economics, Business
This paper studies the modelling and estimation of dependence across international financial markets, with a focus on the structure of dependence. A new approach is proposed based on a mixed copula…
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In this article, the authors design a new trading strategy by using cointegration as a measure of long-term dependencies. They show that the theoretical expected return of this strategy is always…
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Preface. Acknowledgments. PART ONE: BACKGROUND MATERIAL. Chapter 1. Introduction. The CAPM Model. Market Neutral Strategy. Pairs Trading. Outline. Audience. Chapter 2. Time Series. Overview.…
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