Investigation of multivariate pairs trading under copula approach with mixture distribution

Fuli He, Ali Yarahmadi and Fazlollah Soleymani

Applied Mathematics and Computation, 2024, vol. 472, issue C

Abstract: Pairs trading is typically implemented using two assets. The copula approach can allow us to consider the dependency among multiple assets and use multivariate pairs in this strategy. The goal of this article is to investigate this strategy under the copula approach for a group of assets that have mixture distributions. Increasing the consideration of multivariate pairs, especially in the trivariate case, enhances the amount of dependent information. In fact, the results show that multivariate pairs increase trading opportunities. Computational pieces of evidence are brought forward to support the proposed algorithm of this work.

Keywords: Marginal distributions; Pairs trading strategy; Multivariate pairs; Copula; Mixture distribution (search for similar items in EconPapers)
JEL-codes: C15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:472:y:2024:i:c:s0096300324001073

DOI: 10.1016/j.amc.2024.128635

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