Cointegration-Based Active Portfolio Selection in the European Stock Markets
Cointegration-Based Active Portfolio Selection in the European Stock Markets

Author(s): Bálint Botos, László Nagy, Mihály Ormos
Subject(s): International relations/trade, Evaluation research, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: pairs trading; asset pricing; cointegration; statistical arbitrage; market neutral strategy;
Summary/Abstract: We analyze the return gained by cointegration-based pairs trading arbitrage strategy in Western and Eastern European capital markets. We find contrarian evidence to the weak form of market efficiency. The aim of the paper is to explore the mean reversion nature of the highly cointegrated stock pairs and create a trading strategy with predefined entry and exit points. We create portfolios by using 250 day long test periods based on the cointegration selection of the pairs and then traded for 125 days.

• Details
• Contents