Pairs Trading:the Improvement And The Performance In China Market

Financial markets are complex markets.and play an important role in the country markets system. Nowadays,every kind of trading activities are connected with the monetary and capi-tal’s circulate and exchange.The change of the financial markets will influence other markets’s development in the society.Also,other market’s development will have an effect on the financial markets,this leads to the result that there are more and more intersection of finance and other subjects.In the recent years,increasing numbers of mathematician and physicist engaged in eco-nomic field.Econophysics is created with this background.It borrows the methods form applied mathematics,statistical physics and complex system theory to study the statistical regularity in the financial markets.In chapter2,we chose the data of50component stock in shanghai of C-SI300Index from2001to2010.By using Dickey-Fuller test,we find that the close price time series of these stock is first-order co-integrated.In chapter3,we put the50stocks in the chapter into groups to form1225pairs,and then we analyse the price spread time series’s correlation and muti-fractal characteristic.It shows that most of the price spread time series’s Hurst is less than0.5by DFA,as a result, there is a short-range dependence between most of the pairs.By MF-DFA, we find all of the price spread time series has the muti-fractal characteristic.In addition to the first ETF fund issued in2004,then the introduction of stock index futures in2010, and margin trading business was officially launched, our country has been in the era of hedging and short in the security market. Pairs trading strategy, as a common statistical strategy of arbitrage, has been proved to be a favorable strategy to obtain excess returns for a long time. However, there is no single strategy with one hundred percent success rate. Just like other trading strategies, the strategy of pairs trading also would suffer the loss. In order to accept by a growing number of people, especially the investors who focus on the assets with low risk, when we use the strategy to obtain the benefits from portfolio investment, we also need to avoid risks to increase the rate of success. In chapter4,our data is the close price of197stocks in Shanghai Stock Market between2001-2010.We analyse the relationship between some parameters and the return by using pairs trading.We find there are positive correlation between the cointegration or correlation of the price of stocks and the portfolio return.By the phenomenon of contrarian effect in the China Stock Market,we find that the more the difference of the return of two stocks in the same pair,the portfolio return much higher.At last,we analyse the volatility and β and find that when the difference of volatility and β is small, the portfolio return is more stable but lower,on the contrary, when the difference is bigger, the portfolio return are fluctuated remarkably.