Dynamic Pairs Trading Strategy For The Companies Listed In The Istanbul Stock Exchange

Evren Bolgun, Engin Kurun and Serhat Guven ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this research we performed pairs trading strategy based on a comparative mean reversion of asset prices with daily data over the period 2002 through 2008 in Istanbul Stock Exchange. We did not categorize stock pairs by sectors and therefore it is possible to observe mean reversion characteristics of different stocks that are selected from ISE-30 index. The initial formation period is 125 days (approx. 6 months) while we measure the performance results daily. Then both formation process and trading strategies have been structured as dynamic (rolling windows) market trading model through 2008. The results indicate that pairs produced average returns of % 3.36 daily comparing with the naïve buy and hold strategy. However ISE30 daily average return performance % 0.038 between 2002-2008 period. Our trading constraints and trading commissions take away the excess return on pairs mostly. Furthermore, the performance analysis reveals that the pairs trading strategy yields excess returns with less volatility than the market portfolio.

Keywords: mean reversion; pairs trading; distance method; market neutral portfolio; Istanbul Stock Exchange; trading strategies (search for similar items in EconPapers)
JEL-codes: G1 G11 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (2)

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