The Persistence Of Cointegration In Pairs Trading

Pairs trading based on co-integration theory received great concern in academia and financial market after it was proposed based on not only the emergence of a lot of research,but also the emergence of many related financial products in western countries.With the rapid development of China's banking today,with China's launch of margin transaction,stock index futures and other financial products.pairs trading based on co-integration theory has attracted the attention of practitioners in China's financial market.Pairs trading based on co-integration theory is based on the historical data of the co-integration test needs to have stable relationship existed in paired stock portfolio,to obtain a stable balance of income through buy low and sell high.But there is a serious problem: this through historical data to a stable relationship will continue to exist.In the next period time?The content of this paper is based on the historical data of stocks of SSE 100 index to analyze the relationship between the stable through historical data to can continue to exist in the next period time,so as to analyze the operation of pairs trading based on co-integration Theory in the market of our country through the actual data.The SSE 100 Index for the stock pool,through the ADF test to eliminate not a single whole stock,making the remaining stock in accordance with EG two step,the 22 stock portfolio,the stock price time series combination of these a year by EG two step method was used to detect whether there is a co-integration relationship,if it exists,in after the combination of stock price time series a year again in the two step the existence of co-integration relationship test,so that the probability of a combination of co-integration only about 18% of the co-integration relationship exists in the next year.This probability is not ideal.At the same time also calculated for the 50 groups before the strongest correlation the relationship between the association probability of about 30% of the co-integration relationship exists in the next year,that test for co-integration correlation pairs trading portfolio selection there are some meaning based.Therefore,draw the conclusion: to rely solely on the co-integration theory to choose the matched transactions can't be taken,the industry needs analysis,analysis of stock the size of the company,the combination of correlation detection.The innovation of this paper is starting from the paired exchange co-integration theory needs based on the assumption that the SSE 100 Index constituent stocks,through empirical analysis,theoretical assumptions can be established.To match the transaction based on co-integration theory applied in financial market in China.