2012 paper on pairs trading the Sao Paulo exchange

Posted by on Jun 19, 2012 in ArbMaker News! | No Comments

The abstract:

“This paper applies cointegration tests to identify stocks to be used in pairs trading strategies. In addition to estimating long-term equilibrium and to model the resulting residuals, we select stock pairs to compose a pairs trading portfolio based on an indicator of profitability evaluated in-sample. The profitability of the strategy is assessed with data from the São Paulo stock exchange ranging from January 2005 to December 2010. Empirical analysis shows that our arbitrage strategy generates high average returns of 16:01% per year, high Sharpe Ratio of 1:28 and low correlation with the market.”

The link (which can also now be found in the Useful Links section).

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