Autori
De Luca, Roberto
Brunetti, Marianna

Titolo
Pre-selection in cointegration-based pairs trading
Periodico
Statistical methods & applications : Journal of the Italian Statistical Society
Anno: 2023 - Volume: 32 - Fascicolo: 5 - Pagina iniziale: 1611 - Pagina finale: 1640

The paper compares the final profitability of a cointegration-based pairs trading strategy when pairs of stocks are pre-selected by means of seven different measures. Some of the measures considered have been extensively used in the pairs trading literature, while others represent a novelty in this type of application. We find that pre-selection matters, since the excess returns remarkably vary, in terms of both average and variability, depending on the metrics used. Differences in profitability by pre-selection metrics are retrieved even after considering commissions and cut rules, market impact, a stricter definition of the Spread reversion to the equilibrium and alternative cointegration tests. Besides, the pairs trading profitability is found to be heterogeneous across the different pre-selection metrics also in terms of exposure to the systematic stock-market risk factors.



SICI: 1618-2510(2023)32:5<1611:PICPT>2.0.ZU;2-8

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