Research On Pairs Trading Of The HS300 ETFs And The Stock Index Future Based On Cointegration Method

With the development of quantitative trading, the application of pairs trading gained popular and popular as a branch of quantitative investment strategy. The application of securities margin trading in 2010 and the implementation of the HS300 ETFs becoming one part of security margin trading in 2012,enriching the shorting mechanism of China’s market as well as better materials of pairs treading.This paper based on co-integration method, uses 1-minute high-frequency transaction data of five HS300 ETFs and the stock index future to build asset pool of pairs. Through correlation test, liquidity comparison and co-integration test, finally, we choose the Havest HS300 ETFs and IF1412 as our empirical pairs to study. Then we simulated the arbitrage strategy using trading algorithms designed by MATLAB within the sample data. We can get the optimal boundary by changing different boundaries consistently and comparing the results. At last, we detected the effectiveness of the pairs trading strategy and the China’s futures market at the same time, based on the number of arbitrage and the profit we got from the pairs trading strategy.This paper respectively using high frequency data in 1 minutes and 5 minutes closing cost to research pairs trading of empirical analysis, The empirical results show that when the boundary is(2,4), the integrated evaluation is the optimal within the sample data of 1-minute closing cost data. When the boundary is(2,3.5), the evaluation indicators can get a good balance based on 5-minute price arbitrage. If we use the strategy build before to simulate outside the sample data, we can earn revenue from it and it is substantial, which proved that the pairs trading strategy is effective and our country’s futures market is not mature, because there still exists some arbitrage space.There are two characteristics of this paper:(1)The threshold combination which is made of 50 set of special values we used to search for the optimal threshold parameter can reflect the link among boundaries and yield, sharpe ratio and other indexes in the process of arbitrage. Using the evaluation system refers to both benefits and risks to build the pairs trading strategy and verify its effectiveness on the basis of calculating various kinds of transaction fare and cost reasonably.(2)In this article, I adopt the way of executing the algorithm monthly to track the process more detail, strengthening the rigour and the robustness of the arbitrage.At last, this paper can not only offer a new angle of view to study the effectiveness of market, but also provide a certain reference to the investors and researchers in the arbitrage, hoping that the study can improve the practical application of pairs trading strategy.