Research On The Pairs Trading Strategy In China Fund Market

FOF(Fund of Funds)is a fund specially invested in other securities investment funds.With the introduction of "Fund Guidelines in Funds" in September 2016,how FOF managers select the underlying funds for asset allocation has become a focus and difficulty.In the selection of public FOF underlying funds,this paper uses paired trading strategy to synthetically compare the application of different stock selection and timing models in the fund market.Pair trading strategy is a common market neutral strategy,which has brought considerable benefits to many strategic application agencies since its emergence.The premise of pairing trading strategy is to select two related investment targets.The correlation between the two investment targets can be understood as the price difference between the two targets will deviate in a short time because of the change of investment information and investment environment,but this deviation is not irreversible,and the deviation of assets in a short time.It is bound to return to the mean level in a long period of time.The essence of paired trading strategy is to observe the sequence of price difference of selected investment targets.When the price difference touches the threshold of opening and stopping losses,it carries out the operation of buying strong and selling weak positions.At the future investment time point,when the price difference disappears,the reverse position closes to earn profits.The core content of this paper is to use the net value data of open-end funds in China's fund market,divide the matching strategy into stock selection stage and timing stage,and make a comparative analysis of the most suitable matching trading strategy for investors.In the stage of stock selection,this paper compares and analyses the minimum distance stock selection strategy based on the principle of minimum European distance and the co-integration stock selection strategy based on long-term equilibrium relationship.The empirical results show that the co-integration strategy is superior to the minimum distance method in terms of the efficiency of fund use and the impact of the length of the holding period on the sustainability of the pairing relationship,as well as the return and withdrawal risk of the overall strategy.In the timing stage,this paper compares and analyses the error correction model based on fixed parameter model and Kalman filter model based on dynamic parameter model.Empirical results show that the net value series of time-varying funds generated by Kalman filter dynamic parameters leads to the change of price difference at each investment time point,and the trading signals touching the opening and stopping operations are constantly changing,resulting in the reduction of opening times,and the return of closing the next signal is not significantly higher than that of the previous signal.Because of the cost of warehousing,the overall profitability and risk level of the strategy are inferior to the modified error model.The author believes that it is very meaningful for paired trading investors to explore opportunities to invest in price differentials.Setting up a certain stop-loss strategy and profit-making strategy can open up a new way for investment in the financial field through multi-empty warehouse construction and hedging in the future.The author will continue to improve the strategy model in order to find a new way for investment in the financial field.It is more suitable for the investor's paired trading investment strategy in China's capital market.