On the Persistence of Cointegration in Pairs Trading

25 Pages Posted: 5 Sep 2014

Date Written: January 28, 2014

Abstract

An exploratory study is conducted to assess the persistence of cointegration among U.S. equities. In other words, if a pair of equities is found to be cointegrated in one period, is it likely that it will be found to be cointegrated in the subsequent period? An examination is performed of pairs formed from constituents of the S&P 500 during each of the calendar years 2002-2012, comprising over 860,000 pairs in total. The evidence does not support the hypothesis that cointegration is a persistent property.

Keywords: cointegration, pairs trading, quantitative finance

JEL Classification: C22, C32, C52, G12, G14

Suggested Citation

Clegg, Matthew, On the Persistence of Cointegration in Pairs Trading (January 28, 2014). Available at SSRN: https://ssrn.com/abstract=2491201 or http://dx.doi.org/10.2139/ssrn.2491201

Matthew Clegg (Contact Author)

Independent ( email )

No Address Available

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