Research On Pairs Trading Of Bank Stocks Based On The GARCH Model

The margin trading pilot was began at the Shanghai and Shenzhen Stock Exchange in the March 31, 2010. at the same year, the stock index futures was launched in the April 16, the single market trading mechanism was end from that on. In the past time, the single market trading mechanism one side did not take full advantage of the information that mining from the data of the historical stock prices,on the other side the stock sometimes overreact or under-react, due to the influence of irrational factors. But the formation of short mechanism, the investors can obtain gains by the long and short stock based on the principle of the pairs trading in the stock market.The pairs trading as a bilateral trade, the focus is to determine the selection pairs of stock and the trading trigger threshold. In the side of the trading trigger threshold, one method is assuming that the standard deviation is stable on the difference of the pairs stock sequence. As long as the difference of the pairs stock reach a certain degree can trade, this method is simple, but get benefits highly volatile; The second method is assuming the standard deviation that the sequence of the difference of the pairs stock is volatility as the time change, and this volatility can be predicted if assuming the difference of the pairs stock obey one distribution, based on this determine trading strategies. Since the GARCH model is excellent indeal with the residual of the financial series data. we use this model processing residual sequence. Empirical results show that this method can obtain stable profit...