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JOURNAL OF APPLIED BUSINESS AND ECONOMICS
Exploiting Long Term Price Dependencies for Trading Strategies
Author(s): Alexander Galenko, Elmira Popova, Ivilina Popova
Citation: Alexander Galenko, Elmira Popova, Ivilina Popova, (2011) "Exploiting Long Term Price Dependencies for Trading Strategies," Journal of Applied Business and Economics, Vol. 12, Iss. 6, pp. 11 - 25
Article Type: Research paper
Publisher: North American Business Press
Abstract:
The following research uses properties of cointegrated time series that serve as a basis for a daily trading strategy. Its practical implementation is illustrated using the daily closing prices of four world stock market indices. In-sample (as well as out-of-sample) results show that the long-term dependencies of financial time series can be profitably exploited in a variant of “pairs trading” strategy. This paper includes an extended empirical study that shows the strategy's performance as a function of its parameters. The backtests presented show the daily profit-and-loss results for the period 2001 to 2006. During that time, the strategy significantly outperformed a simple buy-and-hold of the individual indices.
