Publikationen

Art der Publikation: Beitrag in Zeitschrift

On the Determinants of Pairs Trading Profitability

Autor(en):
Heiko Jacobs, Martin Weber
Titel der Zeitschrift:
Journal of Financial Markets
Jahrgang:
2015
Heftnummer:
23
Seiten:
75-97
Schlagworte:
Pairs trading, relative-value arbitrage, return predictability, international stock markets, limited attention, limits to arbitrage
Digital Object Identifier (DOI):
doi:10.1016/j.finmar.2014.12.001
Link zum Volltext:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2545440
Zitation:
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Kurzfassung

Abstract

We perform a large-scale empirical analysis of pairs trading, a popular relative-value arbitrage approach. We start with a cross-country study of 34 international stock markets and uncover that abnormal returns are a persistent phenomenon. We then construct a comprehensive U.S. data set to explore the sources behind the puzzling profitability in more depth. Our findings indicate that the type of news leading to pair divergence, the dynamics of investor attention as well as the dynamics of limits to arbitrage are important drivers of the strategy's time-varying performance.