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The profitability of pair trading strategy in stock markets: Evidence from Toronto stock exchange
International Journal of Finance & Economics ; 28(1):193-207, 2023.
Article in English | ProQuest Central | ID: covidwho-2230340
ABSTRACT
Market practitioners and speculators attempt to make benefits from the existence of market price gaps and profit opportunities by arbitrage strategies. Although some investors trade stocks based on the available financial and fundamental information of a particular share, there are others who make profits by risk hedging and swing trading opportunities. One of these strategies is pairs trading, which is a sub‐category of statistical arbitrage. Pairs trading can assure reasonably a risk‐free profit gaining. This paper aims to make a hypothetical portfolio composed of pairs of stocks by exploring a significant association between their prices in the Toronto Stock Exchange, TSX. We compare the profitability of distance, co‐integration, and copula functions as the pair's selection and trading strategy devices in TSX over January 2017 to June 2020. Our results show that the highest profitability comes from trading by the copula method. Our time frame includes two heterogeneous pre and post COVID‐19 periods. Although the financial markets are struggling with a hard situation over the COVID‐19 days, the performance of the methodologies is not affected by the crisis.
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Full text: Available Collection: Databases of international organizations Database: ProQuest Central Type of study: Experimental Studies / Prognostic study Topics: Long Covid Language: English Journal: International Journal of Finance & Economics Year: 2023 Document Type: Article

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Full text: Available Collection: Databases of international organizations Database: ProQuest Central Type of study: Experimental Studies / Prognostic study Topics: Long Covid Language: English Journal: International Journal of Finance & Economics Year: 2023 Document Type: Article