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A Study On The Improvement Of Pair Trading Based On Co Intergration

Posted on:2018-06-22Degree:MasterType:Thesis
Country:ChinaCandidate:W D ZhongFull Text:PDF
GTID:2359330512466489Subject:Finance
Abstract/Summary:PDF Full Text Request
The margin trading pilot was began at the Shanghai and Shenzhen Stock Exchange in the March 2010.In the April of the same year,the stock index futures was also lanchde.This has fundamentally changed the situation that the Chinese stock market investors can only be resolved through unilateral means do more transactions can be profitabl.Due to the changes,the efficiency of capital allocation has been improved and investors can implement more quantitative investment strategies in order to avoid risks and improve earnings.Pair trading strategy is a market-neutral strategy that based on statistical arbitrage.By using this strategy,the investors can identify thedeviation of the stocks' price which has been chosed,so that the investors can shorting the overvalued stock and longing the undervalued stock.After that price gap return to normal levels,the investors can achieve profitability by liquidating.As the pair trading strategy is not only based on the price of sigle stock,but the gap of two stocks' price,so the investors who using this strategy can be able to chieve stable arbitrage and avoid risks across the bull market or bear market.This paper first reviews the research results of previous scholars,and discusses the relevant theoretical basis.By reading literatures in recent years,I found that directly use foreign literature will be 0.75 times the standard deviation as the initial threshold,2 times the standard deviation as the stop threshold approach may not be suitable for the domestic situation.On this basis,further analysis of the banking sector and the real estate business sector in the Wind's industry classification has been carried out.I chosed the pair of stocks that has the biggest correlation coefficent in each sector for empirical analysis.After cointegration testing,the emc model has been Established so that I can get the gap of those two stocks' price to calculate the yield under(conditional)standard variance.The result shows that 0.75 times the(conditional)is not standard variance is not the best Choice for the opening line,also the 2 times the(conditional)standard variance is not the best choice for the force closing line.The best choice for the opening line and force closing line relay on the stock we used.Finally,Whether in the original model or in the GARCH model,I have made good gains,but I can't assert categorically which model is better for pair trading.The empirical part of the proceeds of the stock in the two group of difference is huge,speculate that this result may be related to the stock price volatility is related to the degree of income at the same time;optimal sample empirical part of the proceeds also significantly better than the sample rate of income,which may be relative to the selected time.At the end of this paper,I also put forward some problems in the research,such as the rationality of the selected time period is not verified,there is no need to prove the necessity of the stop loss threshold setting,etc..
Keywords/Search Tags:GARCH, pair trading, Cointegration, error correction
PDF Full Text Request
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