Research On The Application Of Pairs Trading Strategy In Chinese A-share Market

The margin trading has entered the pilot run phase since the March 31,2010 in China,The domestic A-share market can use the statistical arbitrage strategy to short.As a kind of statistical arbitrage strategy,the paired trading strategy has the characteristics of market neutrality and low correlation with market trends.It uses tools to operate short positions and arbitrage to reduce the impact of market risks.This paper uses the cointegration theory,combined with the background of margin trading,to study the practical application of the paired trading strategy in the constituents of the SSE 50 Index.Firstly,the ADF test is carried out on the paired stocks to determine that they are all first-order single-order sequences,which is in accordance with the application conditions of the EG two-step method.Secondly,using the data of stock pairing formation period,using EG two-step method,screening out the co-integrated stock pair,their cointegration relationship between price series,and the transaction parameters that can maximize the return of income(Jiancang line and stop Loss line).Again,using the data of the stock trading period,in the simulated pairing transaction stage,the low-buy and highselling positions are opened,and the appropriate closing operations are performed.Finally,the period overlap calculation of the constituent stocks shows that with the cointegration theory method,more than 80% of the stock pairs can successfully profit,and 43.4% of the stocks have a stock-to-trade yield of 0%-25%.The empirical results show that: Under the mechanism of China's margin trading,the matching transaction has the feasibility of operation,and the result of the matching transaction based on cointegration shows that more than 80% of the stock pairs can be successfully profitable,indicating that the matching transaction strategy is successful in the A-share market.The possibility of profit and the higher returns.The empirical results show that under the mechanism of China's margin trading,the matching transaction has the feasibility of operation,and the result of the matching transaction based on cointegration shows that more than 80% of the stock pairs can be successfully profitable,indicating that the possibility of applying pairs trading strategy to profit in the A-share market is high.