Pairs trading: A copula approach

Journal of Derivatives and Hedge Funds

Volumn 19, Issue 1, 2013, Pages 12-30

  Liew, Rong Qi ^a   Wu, Yuan ^b  

^a NANYANG TECHNOLOGICAL UNIVERSITY   (Singapore)

^b NANYANG TECHNOLOGICAL UNIVERSITY   (Singapore)

Author keywords

copula; correlation; dependency; pairs trading; trading strategy

Indexed keywords

EID: 84875699719     PISSN: 17539641     EISSN: 1753965X     Source Type: Journal    
DOI: 10.1057/jdhf.2013.1     Document Type: Article

References (15)

1. Ane, T. and Kharoubi, C. (2003) Dependence structure and risk measure. Journal of Business 76(3): 411-438.
2. Bock, M. and Mestel, R. (2008) A regime-switching relative value arbitrage rule. University of Graz, Institute of Banking and Finance.
3. Crook, J. and Moreira, F. (2011) Checking for asymmetric default dependence in a credit card portfolio: A copula approach. Journal of Empirical Finance 18(4): 728-742.
4. Do, B. and Faff, R. (2010) Does simple pairs trading still work? Financial Analysts Journal 66(4): 83-95.
5. Ferreira, L. (2008) New tools for spread trading. Futures 37(12): 38-41.
6. Galenko, A., Popova, E. and Popova, I. (2012) Trading in the presence of cointegration. The Journal of Alternative Investments 15(1): 85-97.
7. Gatev, E., Goetzmann, W.N. and Rouwenhorst, K.G. (2006) Pairs trading: Performance of a relative-value arbitrage rule. The Review of Financial Studies 19(3): 797-827.
8. Hu, L. (2003) Dependence Patterns across Financial Markets: A Mixed Copula Approach. Columbus, OH: The Ohio State University, Department of Economics.
9. Kat, H.M. (2003) The dangers of using correlation to measure dependence. The Journal of Alternative Investments 6(2): 54-58.
10. Lin, Y-X., McCrae, M. and Gulati, C. (2006) Loss protection in pairs trading through minimum profit bounds: A cointegration approach. Journal of Applied Mathematics and Decision Sciences 2006(4): 1-14.
11. Nelsen, R.B. (2006) An Introduction to Copulas, 2nd edn. New York: Springer.
12. Perlin, M.S. (2009) Evaluation of pairs-trading strategy at the Brazilian financial market. Journal of Derivatives & Hedge Funds 15(2): 122-136.
13. Sklar, A. (1959) Fonctions de répartition à n dimensions et leurs marges, Vol. 8. Publications de l'Institut de Statistique de L'Université de Paris, pp. 229-231.
14. Trivedi, P.K. and Zimmer, D.M. (2007) Copula modeling: An introduction for practitioners. Foundations and Trendss in Econometrics 1(1): 1-111.
15. Vidyamurthy, G. (2004) Pairs Trading Quantitative Methods and Analysis. New Jersey: John Wiley & Sons.