Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency
In this paper, we use a statistical arbitrage method in different developed and emerging countries to show that the profitability of the strategy is based on the degree of market efficiency. We will show that our strategy is more profitable in emerging ones and in periods with greater uncertainty. O...
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MDPI AG
2021-01-01
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author | Karen Balladares José Pedro Ramos-Requena Juan Evangelista Trinidad-Segovia Miguel Angel Sánchez-Granero |
author_facet | Karen Balladares José Pedro Ramos-Requena Juan Evangelista Trinidad-Segovia Miguel Angel Sánchez-Granero |
author_sort | Karen Balladares |
collection | DOAJ |
description | In this paper, we use a statistical arbitrage method in different developed and emerging countries to show that the profitability of the strategy is based on the degree of market efficiency. We will show that our strategy is more profitable in emerging ones and in periods with greater uncertainty. Our method consists of a Pairs Trading strategy based on the concept of mean reversion by selecting pair series that have the lower Hurst exponent. We also show that the pair selection with the lowest Hurst exponent has sense, and the lower the Hurst exponent of the pair series, the better the profitability that is obtained. The sample is composed by the 50 largest capitalized companies of 39 countries, and the performance of the strategy is analyzed during the period from 1 January 2000 to 10 April 2020. For a deeper analysis, this period is divided into three different subperiods and different portfolios are also considered. |
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institution | Directory Open Access Journal |
issn | 2227-7390 |
language | English |
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spelling | doaj.art-9af314d5bd8947f18e9fb4a1ab6541b42023-12-03T13:36:49ZengMDPI AGMathematics2227-73902021-01-019217910.3390/math9020179Statistical Arbitrage in Emerging Markets: A Global Test of EfficiencyKaren Balladares0José Pedro Ramos-Requena1Juan Evangelista Trinidad-Segovia2Miguel Angel Sánchez-Granero3Facultad de Ciencias Administrativas, Universidad de Guayaquil, 090514 Guayaquil, EcuadorDepartamento de Economía y Empresa, Universidad de Almería, Carretera Sacramento s/n, La Cañada de San Urbano, 04120 Almería, SpainDepartamento de Economía y Empresa, Universidad de Almería, Carretera Sacramento s/n, La Cañada de San Urbano, 04120 Almería, SpainDepartamento de Matemáticas, Universidad de Almería, Carretera Sacramento s/n, La Cañada de San Urbano, 04120 Almería, SpainIn this paper, we use a statistical arbitrage method in different developed and emerging countries to show that the profitability of the strategy is based on the degree of market efficiency. We will show that our strategy is more profitable in emerging ones and in periods with greater uncertainty. Our method consists of a Pairs Trading strategy based on the concept of mean reversion by selecting pair series that have the lower Hurst exponent. We also show that the pair selection with the lowest Hurst exponent has sense, and the lower the Hurst exponent of the pair series, the better the profitability that is obtained. The sample is composed by the 50 largest capitalized companies of 39 countries, and the performance of the strategy is analyzed during the period from 1 January 2000 to 10 April 2020. For a deeper analysis, this period is divided into three different subperiods and different portfolios are also considered.https://www.mdpi.com/2227-7390/9/2/179emerging marketspairs tradingHurst exponentfinancial marketslong memoryco-movement |
spellingShingle | Karen Balladares José Pedro Ramos-Requena Juan Evangelista Trinidad-Segovia Miguel Angel Sánchez-Granero Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency Mathematics emerging markets pairs trading Hurst exponent financial markets long memory co-movement |
title | Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency |
title_full | Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency |
title_fullStr | Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency |
title_full_unstemmed | Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency |
title_short | Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency |
title_sort | statistical arbitrage in emerging markets a global test of efficiency |
topic | emerging markets pairs trading Hurst exponent financial markets long memory co-movement |
url | https://www.mdpi.com/2227-7390/9/2/179 |
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