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Does Simple Pairs Trading Still Work?

Posted: 11 Aug 2010  

Binh Huu Do

Monash University; Financial Research Network (FIRN)

Robert W. Faff

University of Queensland

Date Written: July 1, 2010

Abstract

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 global financial crisis. Moreover, alternative algorithms combined with other measures enhance trading profits considerably, by 22 bps a month for bank stocks.

Keywords: Portfolio Management, Equity Portfolio Management Strategies, Behavioral Finance, Limits to Arbitrage, Noise-Trader Risk, Quantitative Methods, Correlation Analysis and Regression, Time-Series Analysis

Suggested Citation

Do, Binh Huu and Faff, Robert W., Does Simple Pairs Trading Still Work? (July 1, 2010). Financial Analysts Journal, Vol. 66, No. 4, pp. 83-95, 2010. Available at SSRN: https://ssrn.com/abstract=1656954

Binh Huu Do (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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