Leveraged Exchange Trated Funds’s Emerging Markets: A Practical Application of Statistical Arbitrage Based on Cointegration Cover Image

Leveraged Exchange Trated Funds’s Emerging Markets: A Practical Application of Statistical Arbitrage Based on Cointegration
Leveraged Exchange Trated Funds’s Emerging Markets: A Practical Application of Statistical Arbitrage Based on Cointegration

Author(s): Francisco Ortiz-Arango, Daniel Ulises Urrutia-Martínez, Alejandro Flores-Méndez
Subject(s): Economy, Methodology and research technology, Transformation Period (1990 - 2010), Present Times (2010 - today)
Published by: Reprograph
Keywords: pair trading; statistical arbitrage; exchange traded funds (ETF); cointegration; mean reverse;

Summary/Abstract: Pair Trading is a Neutral Market Strategy descendant of Statistical Arbitrage. Its objective is to identify pairs of assets whose historical prices or variations have high correlation between them. To attain this, pairs trading takes advantage of overvalued assets sales and purchases undervalued assets. To identify the goal pair, we performed back- testing using historical log returns (from December 31, 2008 through April 16, 2013). With the goal pair identified we run the daily strategy using historical adjusted at closed price data and historical log returns (from December 31, 2010 through September 11, 2015). Herein, we consider two inverse Exchange Trade Funds versus benchmark EEM (iShares MSCI Emerging Markets ETF) index. The objective of this work is to demonstrate that automated trading strategy built under the co-integration approach in moving windows of 60 and 180 days is able to beat a buy and hold strategy on the EEM benchmark.

  • Issue Year: XII/2017
  • Issue No: 47
  • Page Range: 9-12
  • Page Count: 4
  • Language: English