Are pairs trading profits robust to trading costs?

Journal of Financial Research

Volumn 35, Issue 2, 2012, Pages 261-287

  Do, Binh ^a   Faff, Robert ^b  

^a MONASH UNIVERSITY   (Australia)

^b UNIVERSITY OF QUEENSLAND   (Australia)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 84861767740     PISSN: 02702592     EISSN: 14756803     Source Type: Journal    
DOI: 10.1111/j.1475-6803.2012.01317.x     Document Type: Article

References (34)

1. Abreu, D., and M. Brunnermeier, 2002, Synchronization risk and delayed arbitrage, Journal of Financial Economics 66, 341-60.
2. Avramov, D., T. Chordia, and A. Goyal, 2006, Liquidity and autocorrelations in individual stock returns, Journal of Finance 61, 2365-94.
3. Berkowitz, S., D. Logue, and E. Noser, 1988, The total cost of transactions on the NYSE, Journal of Finance 43, 97-112.
4. Campbell, J., M. Lettau, B. Malkiel, and Y. Xu, 2001, Have individual stocks become more volatile? An empirical exploration of idiosyncratic risk, Journal of Finance 56, 1-43.
5. Chan, L., and J. Lakonishok, 1995, Behaviour of stock prices around institutional trades, Journal of Finance 50, 1147-74.
6. Chan, W. H., R. Jha, and M. Kalimipalli, 2009, The economic value of using realized volatility in forecasting future implied volatility, Journal of Financial Research 32, 231-59.
7. D'Avolio, G., 2002, The market for borrowing stocks, Journal of Financial Economics 66, 271-306.
8. Do, B., and R. Faff, 2010, Does simple pairs trading still work? Financial Analysts Journal 66, 83-95.
9. Duffie, D., N. Garleanu, and L. Pedersen, 2002, Securities lending, shorting and pricing, Journal of Financial Economics 66, 307-39.
10. Engelberg, J., P. Gao, and R. Jagannathan, 2009, An anatomy of pairs trading: The role of idiosyncratic news, common information and liquidity, Working Paper.
11. Fama, E., and K. French, 1993, Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3-56.
12. Fama, E., and K. French, 1997, Industry costs of equity, Journal of Financial Economics 43, 153-93.
13. Fung, W., and D. Hsieh, 2002, Asset-based style factors for hedge funds, Financial Analysts Journal 58, 16-27.
14. Fung, W., and D. Hsieh, 2004, Hedge fund benchmarks: A risk-based approach, Financial Analysts Journal 60, 65-80.
15. Gatev, E., W. Goetzmann, and K. Rouwenhorst, 2006, Pairs trading: Performance of a relative value arbitrage rule, Review of Financial Studies 19, 797-827.
16. Grundy, B., and J. Martin, 2001, Understanding the nature of the risks and the sources of the rewards to momentum investing, Review of Financial Studies 14, 29-78.
17. Hameed, A., J. Huang, and G. M. Mian, 2010, Industries and stock return reversals, Available at
18. Investment Technology Group, 2008, ITG global trading cost review: 2018 Q3, Available at
19. Investment Technology Group, 2010, ITG's global commission review report: 2010 Q1, Available at
20. Keim, D., and A. Madhavan, 1997, Transaction costs and investment style: An inter-exchange analysis of institutional equity trades, Journal of Financial Economics 46, 265-92.
21. Korajczyk, R., and R. Sadka, 2004, Are momentum profits robust to trading costs? Journal of Finance 59, 1039-82.
22. Kraus, A., and H. Stoll, 1972, Price impact of block trading on the New York Stock Exchange, Journal of Finance 27, 569-88.
23. Jegadeesh, N., 1990, Evidence of predictable behaviour in security prices, Journal of Finance 45, 881-98.
24. Jegadeesh, N., and S. Titman, 1993, Returns to buying winners and selling losers: Implication for stock market efficiency, Journal of Finance 48, 65-91.
25. Jensen, M., 1978, Some anomalous evidence regarding market efficiency, Journal of Financial Economics 6, 95-101.
26. Jones, C., 2002, A century of stock market liquidity and trading costs, Working Paper, Columbia University.
27. Jones, C., and M. Lipson, 2001, Sixteenths: Direct evidence on institutional execution costs, Journal of Financial Economics 59, 253-78.
28. Khankani, A., and A. Lo, 2007, What happened to the quants in August 2007? Journal of Investment Management 5, 5-54.
29. Lo, A., 2002, The statistics of Sharpe ratios, Financial Analysts Journal 58, 36-52.
30. Lo, A., and C. MacKinlay, 1990, Data snooping biases in tests of financial asset pricing models, Review of Financial Studies 3, 175-205.
31. Mitchell, M., and T. Pulvino, 2001, Characteristics of risk and return in risk arbitrage, Journal of Finance 56, 2135-75.
32. Pastor, L., and R. Stambaugh, 2003, Liquidity risk and expected stock returns, Journal of Political Economy 111, 642-85.
33. Schleifer, A., and R. Vishny, 1997, The limits of arbitrage, Journal of Finance 52, 35-55.
34. Stein, J., 2009, Sophisticated investors and market efficiency, Journal of Finance 64, 1517-47.