Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency

Karen Balladares, José Pedro Ramos-Requena, Juan Trinidad-Segovia () and Miguel Angel Sánchez-Granero
Additional contact information
Karen Balladares: Facultad de Ciencias Administrativas, Universidad de Guayaquil, 090514 Guayaquil, Ecuador
José Pedro Ramos-Requena: Departamento de Economía y Empresa, Universidad de Almería, Carretera Sacramento s/n, La Cañada de San Urbano, 04120 Almería, Spain
Miguel Angel Sánchez-Granero: Departamento de Matemáticas, Universidad de Almería, Carretera Sacramento s/n, La Cañada de San Urbano, 04120 Almería, Spain

Mathematics, 2021, vol. 9, issue 2, 1-20

Abstract: In this paper, we use a statistical arbitrage method in different developed and emerging countries to show that the profitability of the strategy is based on the degree of market efficiency. We will show that our strategy is more profitable in emerging ones and in periods with greater uncertainty. Our method consists of a Pairs Trading strategy based on the concept of mean reversion by selecting pair series that have the lower Hurst exponent. We also show that the pair selection with the lowest Hurst exponent has sense, and the lower the Hurst exponent of the pair series, the better the profitability that is obtained. The sample is composed by the 50 largest capitalized companies of 39 countries, and the performance of the strategy is analyzed during the period from 1 January 2000 to 10 April 2020. For a deeper analysis, this period is divided into three different subperiods and different portfolios are also considered.

Keywords: emerging markets; pairs trading; Hurst exponent; financial markets; long memory; co-movement; efficiency (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2227-7390/9/2/179/pdf (application/pdf)
https://www.mdpi.com/2227-7390/9/2/179/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jmathe:v:9:y:2021:i:2:p:179-:d:482011

Access Statistics for this article

Mathematics is currently edited by Ms. Emma He

More articles in Mathematics from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().