Study On Pairs Trading Strategy With β Factor In A Share Market Of China

In recent years, as the global capital market in the rapid expansion and evolution,financial derivative products become more and more diversified, more colorful. Hedgeinvestment is an important strategy in today’s investment field, and as the speciesrichness of hedge funds and the high leverage of investment, it has become an importantpart of the mature financial markets. Chinese economy have rapidly and development,and our financial market gradually better, it will come true soon that the relevantsecurities lending and borrowing business. As an important hedge investment, thestrategy of pairs trading through the analysis of the stock market price, make hedgeinvestment research becomes simple and direct.This article mainly research on pairs trading methods and trading strategies. At first,it introduced the theory thought and the basic concept of the pairs trading, comparingwith domestic and review international numerous scholars study of pairs tradingdirection and the research results, through stock pools building, pairs methods, tradingstrategies and the results evaluation of pairs trading research in detail. Review domesticstock pairs way is unitary, most of the share pairs for a securities sector shares one toone pair, while Baronyan(2010) in the pairs trading building stock pool researchdirection is proposed a new way, and it is to build stock price analysis, in after logarithmprocessing of stock ratio coefficient of relative risk as analysis object. Review alsofound that Chinese pairs trading strategy method is relative limited, most of the tradingstrategy based on GGR(2006) trading strategy, and the trading strategy of Herlemont(2010) was based on the proposed improvement opportunity establish positions, wouldtrigger position conditions improving breaking two times the standard deviation.Based on Chinese share market into two years of trading data, firstly the basic stockpool was divided by risk coefficient, and then through the empirical study, using twotrading strategies analysis feasibility of pairs trading, and compared the merits of thetwo strategies.In article, the empirical results show that the risk coefficient based on the basicstock pool, on the basis of analysis of the two strategies yield, earnings volatility andsharp index, found that the rate of remuneration of the two trading strategies werehigher than the stock market return rate, and two trading strategies Sharpe ratio greaterthan one, pairs trading strategy effect is good enough. At the same time, based on thedifference between two strategies, and compares the two strategies of trading results,found that two strategy, Herlemont trading strategy not only yields higher than GGRtrading strategies, and to earning volatility, it also belows GGR trading strategies, andHerlemont trading strategy Sharpe ratio is higher than GGR trading strategy. so in thepairs trading strategy, Herlemont trading strategy is better than GGR trading strategies. In this article, the research of pairs trading’s method is based on one to one stockportfolio, and it is relying on a same stock index plate for dividing the stocks pool. So inthe later research, I hope someone can build a many-to-many pairs trading stocksportfolio, and the different stocks index for pairs trading.