Return and Risk of Pairs Trading Using a Simulation-Based Bayesian Procedure for Predicting Stable Ratios of Stock Prices

Return and Risk of Pairs Trading Using a Simulation-Based Bayesian Procedure for Predicting Stable Ratios of Stock Prices

We investigate the direct connection between the uncertainty related to estimated stable ratios of stock prices and risk and return of two pairs trading strategies: a conditional statistical arbitrage method and an implicit arbitrage one. A simulation-based Bayesian procedure is introduced for predi...

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Bibliographic Details
Main Authors: David Ardia, Lukasz T. Gatarek, Lennart Hoogerheide, Herman K. van Dijk
Format: Article
Language:English
Published: MDPI AG 2016-03-01
Series:Econometrics
Subjects:
Bayesian analysis
cointegration
linear normalization
orthogonal normalization
pairs trading
statistical arbitrage
Online Access:http://www.mdpi.com/2225-1146/4/1/14

Internet

http://www.mdpi.com/2225-1146/4/1/14

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