An Empirical Study On Improving Paired Trading Strategy In A Stock Market

In the era of finance and information globalization,Everyone had feel the remarkable development of the smart finance and the development of financial market.There are many types of financial products and derivatives throughout lots of institutions.Investors pay much attention on how to gain more benefit from this complex market and financial derivative products and take some valid strategies is important.Under the background of financial intelligence,investment strategy created by human-mind and with the aid of computer programming for automated trading has become a new trend.The brand new investment is known as "quantitative investment" which have 30 years history in foreign countries,such strategy has been proved to be very fruitful in the overseas market,with the development of Chinese financial market,such a quantitative investment strategies of asset management is a kind of good measure for trail.The main work in this paper is the empirical research,we select SSE 50 index as the sample pool,and select 2006-2016 as the research period.The fundamentals in the second chapter,we use the traditional analysis of screened pairs and the minimum distance method for accurate calculation of the distance for the stock value,after sort process,we select the 5%/10% part to match the minimum distance,then we take the co-integration test in the third chapter,make our stock complied with theoretical time series model,finally we construct a kind of pair trading strategy in the fourth chapter,and program our model by R Studio,and analyze the empirical result.Chinese financial market is in a stage of rapid developing,with the introduction of margin trading and opening of stock index futures market,Chinese financial market has officially entered the era of hedge trading,as a result,quantitative investment strategies have a bright prospect of application.History has proved that the pair trading strategy can obtain excess returns.However there is no perfect trading strategy,the same strategy used in different markets may get totally different results,we need to optimize our strategy for achieving the most suitable strategies.In the fourth chapter,the optimization strategy part,we use numerical simulation method to search the parameters that achieve the highest rate of return,in the process of numerical simulation.We can found that initial open positions in the setting of threshold can significantly affect the strategy yields,there is a significant relationship between different threshold and the price fluctuation pattern.Considering transaction cost.Investors may not blindly pursue high frequency of transactions,sometimes simple Buy and Hold strategy may achieve higher yields consequently.