The profitability of pairs trading strategies: distance, cointegration and copula methods

@article{Rad2016ThePO,
  title={The profitability of pairs trading strategies: distance, cointegration and copula methods},
  author={H. Rad and R. Low and Robert W. Faff},
  journal={Quantitative Finance},
  year={2016},
  volume={16},
  pages={1541 - 1558}
}
  • H. Rad, R. Low, Robert W. Faff
  • Published 2016
  • Economics
  • Quantitative Finance
  • We perform an extensive and robust study of the performance of three different pairs trading strategies—the distance, cointegration and copula methods—on the entire US equity market from 1962 to 2014 with time-varying trading costs. For the cointegration and copula methods, we design a computationally efficient two-step pairs trading strategy. In terms of economic outcomes, the distance, cointegration and copula methods show a mean monthly excess return of 91, 85 and 43 bps (38, 33 and 5 bps… CONTINUE READING
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