Are Pair Trading Strategies Profitable during COVID-19 Period?
Journal of Information and Knowledge Management
; 2022.
Article
in English
| Scopus | ID: covidwho-1861656
ABSTRACT
Pair trading strategy is a well-known profitable strategy in stock, forex, and commodity markets. As most of the world stock markets declined during COVID-19 period, therefore this study is going to observe whether this strategy is still profitable after COVID-19 pandemic. One of the powerful algorithms of DBSCAN under the umbrella of unsupervised machine learning is applied and three clusters were formed by using market and accounting data. The formation of these three clusters was based on book value per share, earning per share, classification of sector, market capitalisation and with other factors formed from PCA on the returns of daily data of six months of the 80 sample firms for year 2019-2020. An average of -0.32% average excess monthly return with Sharpe ratio of -0.0012 and Treynor ratio of -0.0231 is to be observed in COVID-19 pandemic period. However, the result of risk-adjusted performance under Jensen's alpha is observed to be insignificant. The policy implication of this study, for different portfolios and fund managers is suggested to use machine learning approach to get positive and higher returns for their clients. © 2022 World Scientific Publishing Company.
Full text:
Available
Collection:
Databases of international organizations
Database:
Scopus
Language:
English
Journal:
Journal of Information and Knowledge Management
Year:
2022
Document Type:
Article
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