Do Business Cycles Exhibit Beneficial Information for Portfolio Management? An Empirical Application of Statistical Arbitrage

Klaus Grobys
Additional contact information
Klaus Grobys: Academia de Studii Economice / Facultatea de Finante, Asigurari, Banci si Burse de Valori

The Review of Finance and Banking, 2010, vol. 02, issue 1, 041-056

Abstract: An advantageous statistical arbitrage strategy should exhibit a zero-cost trading strategy for which the expected payoff should be positive. In practical applications, however, the abnormal returns often are out-of-sample not significant. The statistical model being suggested here results in an estimated portfolio exhibiting in-sample a cointegration relationship with the artificial stock index. The portfolio returns exhibited out-of-sample a mean of 10.44% p.a., whereas the volatility was one third lower in comparison to the benchmark's volatility. Accounting for trading costs of 2.94% p.a. on average, the annual returns of the estimated portfolio are out-of-sample still 6.83% higher than the market returns. As a result, the model involves implicitly advantageous market timing.

Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.rfb.ase.ro/articole/A4-Grobys.pdf Full text (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:rfb:journl:v:02:y:2010:i:1:p:041-056

Access Statistics for this article

The Review of Finance and Banking is currently edited by Victor Dragota; Bogdan Negrea

More articles in The Review of Finance and Banking from Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante Strada Mihai Eminescu nr.13-15, sector 1, Bucuresti, Romania. Contact information at EDIRC.
Bibliographic data for series maintained by Tatu Lucian ().