Pairs Trading: Performance of a Relative Value Arbitrage Rule

Evan Gatev, William Goetzmann and K. Rouwenhorst

Yale School of Management Working Papers from Yale School of Management

Abstract: We test a Wall Street investment strategy, pairs trading, with daily data over 1962-2002. Stocks are matched into pairs with minimum distance between normalized historical prices. A simple trading rule yields average annualized excess returns of up to 11 percent for selffi

Date: 1998-12-01, Revised 2000-08-01
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