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Can pairs trading be used during a financial crisis?
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.
2020 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

In this paper, it is investigated whether pairs trading is a suitable trading strategy during a financial crisis. It is written in the subject of financial statistics and aims to particularly focus on the statistical aspects of the strategy. The constituents of the S&P 500 index from the crisis of 2008 are used as empirical evidence for the study. The evaluation is made by comparing the yearly performance of the constructed pairs trading portfolios, to the performance of the S&P 500. The pairs trading methodology that is used is largely based on the statistical concepts of stationarity and cointegration. The tests that are chosen to check for these properties, are the ADF-test and Johansen’s test respectively. In the study it is found that in terms of return, the portfolio outperforms the S&P 500 for all of the years but one. Despite some flaws with regard to the limited extent of the study, it is concluded that the findings suggest pairs trading as profitable during a financial crisis.

Place, publisher, year, edition, pages
2020. , p. 82
Keywords [en]
Pairs trading, Cointegration, Stationarity, Market neutrality, Financial crises, Statistical arbitrage.
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:uu:diva-403577OAI: oai:DiVA.org:uu-403577DiVA, id: diva2:1390415
Subject / course
Statistics; Statistics
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Examiners
Available from: 2020-02-03 Created: 2020-01-31 Last updated: 2020-02-03Bibliographically approved

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CiteExportLink to record
Permanent link

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Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
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  • Other locale
More languages
Output format
  • html
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