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There is something about pairs trading

Chng, Michael 2009, There is something about pairs trading, Corporate finance review, vol. 13, no. 5, pp. 27-35.

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Title There is something about pairs trading
Author(s) Chng, Michael
Journal name Corporate finance review
Volume number 13
Issue number 5
Start page 27
End page 35
Publisher W G & L Financial Reporting & Management Research
Place of publication New York, N.Y.
Publication date 2009-03
ISSN 1089-327X
Summary The process of pairs trading involves exhaustively matching and ranking pairwise stocks based on some prespecified measure of closeness; e.g., correlation, cointegration, sum-of-squared price difference. Pairs trading is popular for various reasons. It is simple to follow and execute. The pairwise portfolio can be nearly market-neutral, such that it does not require the comprehensive analysis of macroeconomic news. Since it is based on relative valuation, the actual worth of individual firms is not a pertinent consideration. The strategy is sufficiently flexible to accommodate various investment styles. Lastly, it does not evoke frequent intraday rebalancing, such that pairs trading can be automated to a certain extent and be cost-feasibly profitable. Despite its long history on Wall Street, pairs trading remains elusive in nature. The academic attention it attracts is modest compared to contrarian and momentum trading.
Language eng
Field of Research 150201 Finance
Socio Economic Objective 900102 Investment Services (excl. Superannuation)
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2009, W G & L Financial Reporting & Management Research
Persistent URL http://hdl.handle.net/10536/DRO/DU:30022988

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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