Empirical Investigation of an Equity Pairs Trading Strategy

Huafeng (Jason) Chen (), Shaojun (Jenny) Chen (), Zhuo Chen () and Feng Li ()
Additional contact information
Huafeng (Jason) Chen: PBC School of Finance, Tsinghua University, Beijing 100083, China
Shaojun (Jenny) Chen: Connor, Clark and Lunn Investment Management, Vancouver, British Columbia V6E 4M3, Canada
Zhuo Chen: PBC School of Finance, Tsinghua University, Beijing 100083, China
Feng Li: Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, Shanghai 200030, China

Management Science, 2019, vol. 65, issue 1, 370-389

Abstract: We show that an equity pairs trading strategy generates large and significant abnormal returns. We find that two components of the trading signal (i.e., short-term reversal and pairs momentum) have different dynamic and cross-sectional properties. The pairs momentum is largely explained by the one-month version of the industry momentum. Therefore, the pairs trading profits are largely explained by the short-term reversal and a version of the industry momentum.

Keywords: pairs trading; pairs momentum; industry momentum; short-term reversal (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2017.2825 (application/pdf)

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:inm:ormnsc:v:65:y:2019:i:1:p:370-389

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().