Copula-Based Trading of Cointegrated Cryptocurrency Pairs

Masood Tadi and Jiří Witzany

No 5.005, FFA Working Papers from Prague University of Economics and Business

Abstract: This research introduces a novel pairs trading strategy based on copulas for cointegrated pairs of cryptocurrencies. To identify the most suitable pairs, the study employs linear and non-linear cointegration tests along with a correlation coefficient measure and fits different copula families to generate trading signals formulated from a reference asset for analyzing the mispricing index. The strategy's performance is then evaluated by conducting back-testing for various triggers of opening positions, assessing its returns and risks. The findings indicate that the proposed method outperforms buy-and-hold trading strategies in terms of both profitability and risk-adjusted returns.

Keywords: Capital ratio; Basel capital requirements; COVID-19 pandemic; global financial crisis (search for similar items in EconPapers)
JEL-codes: C33 G21 G28 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2023-05-03, Revised 2023-05-03
New Economics Papers: this item is included in nep-rmg
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://wp.ffu.vse.cz/artkey/wps-202301-0004_copula ... tocurrency-pairs.php (text/html)
http://wp.ffu.vse.cz/pdfs/wps/2023/01/04.pdf (application/pdf)
free of charge

Related works:
Journal Article: Copula-based trading of cointegrated cryptocurrency Pairs (2025)
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:prg:jnlwps:v:5:y:2023:id:5.005

Ordering information: This working paper can be ordered from
Faculty of Finance and Accounting, University of Economics, Prague, nám. W. Churchilla 4, 130 67 Prague 3, Czech Republic
http://wp.ffu.vse.cz

Access Statistics for this paper

More papers in FFA Working Papers from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().