Introducing Hurst exponent in pair trading

J.P. Ramos-Requena, Juan Trinidad-Segovia () and M.A. Sánchez-Granero

Physica A: Statistical Mechanics and its Applications, 2017, vol. 488, issue C, 39-45

Abstract: In this paper we introduce a new methodology for pair trading. This new method is based on the calculation of the Hurst exponent of a pair. Our approach is inspired by the classical concepts of co-integration and mean reversion but joined under a unique strategy. We will show how Hurst approach presents better results than classical Distance Method and Correlation strategies in different scenarios. Results obtained prove that this new methodology is consistent and suitable by reducing the drawdown of trading over the classical ones getting as a result a better performance.

Keywords: Pair trading; Co-movement; Cointegration; Hurst exponent; Long memory; Financial market (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:488:y:2017:i:c:p:39-45

DOI: 10.1016/j.physa.2017.06.032

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