A Cooperative Dynamic Approach to Pairs Trading | Zendy

José Pedro Ramos-Requena | Zendy; María de las Nieves López García | Zendy; M.A. Sánchez-Granero | Zendy; Juan Evangelista Trinidad Segovia | Zendy

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A Cooperative Dynamic Approach to Pairs Trading

Author(s) -

José Pedro Ramos-Requena,

María de las Nieves López García,

M.A. Sánchez-Granero,

Juan Evangelista Trinidad Segovia

Publication year - 2021

Publication title -

complexity

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.447

H-Index - 61

eISSN - 1099-0526

pISSN - 1076-2787

DOI - 10.1155/2021/7152846

Subject(s) - volatility (finance) , mean reversion , stock (firearms) , stock exchange , econometrics , trading strategy , economics , financial economics , pairs trade , algorithmic trading , finance , alternative trading system , geography , archaeology

Based on recent works on stocks comovement, Pairs Trading’s strategy is enhanced by reducing the stock universe to the stocks with the lower volatility on a given date. From this universe of low volatility stocks, pairs are selected by looking for pairs whose series present a high degree of antipersistence. Finally, a “reversion to the mean” strategy is applied to these pairs. It is shown that, with this approach to Pairs Trading, positive results can be obtained for stock from the Nasdaq stock exchange, mainly during bull markets and low volatility periods.

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