883
Views
17
CrossRef citations to date
0
Altmetric
Original Articles

Non-linear dependence modelling with bivariate copulas: statistical arbitrage pairs trading on the S&P 100

&

References

  • Akaike, H. 1973. “Information Theory as an Extension of the Maximum Likelihood Principle.” Second International Symposium on Information Theory, no. 1: 267–281.
  • Asquith, W. H. 2015. “R Package Copbasic: General Copula Theory and Many Utility Functions.” R package. https://cran.r-project.org/web/packages/copBasic
  • Bacon, C. R. 2008. Practical Portfolio Performance: Measurement and Attribution. 2nd ed. Chichester, England: Wiley finance.
  • Bogomolov, T. 2013. “Pairs Trading Based on Statistical Variability of the Spread Process.” Quantitative Finance 13 (9): 1411–1430. doi:10.1080/14697688.2012.748934.
  • Bowen, D. A., and M. C. Hutchinson. 2016. “Pairs Trading in the UK Equity Market: Risk and Return.” The European Journal of Finance 22 (14): 1363–1387. doi:10.1080/1351847X.2014.953698.
  • Campbell, R., R. Huisman, and K. Koedijk. 2001. “Optimal Portfolio Selection in a Value-At-Risk Framework.” Journal of Banking & Finance 25 (9): 1789–1804. doi:10.1016/S0378-4266(00)00160-6.
  • Chan, L. K. C., H.-L. Chen, and J. Lakonishok. 2002. “On Mutual Fund Investment Styles.” Review of Financial Studies 15 (5): 1407–1437. doi:10.1093/rfs/15.5.1407.
  • Chen, H. L., and G. Bassett. 2014. “What Does Beta-Smb Greater 0 Really Mean?” Journal of Financial Research 37 (4): 543–552. doi:10.1111/jfir.12047.
  • Cont, R. 2001. “Empirical Properties of Asset Returns: Stylized Facts and Statistical Issues.” Quantitative Finance 1 (2): 223–236. doi:10.1080/713665670.
  • Deheuvels, P. 1978. “Caractérisation complète des lois extrêmes multivariées et de la convergence des types extrêmes.” Publ. Inst. Statist. Univ. Paris 23 (3): 1–36.
  • Do, B., and R. Faff. 2010. “Does Simple Pairs Trading Still Work?” Financial Analysts Journal 66 (4): 83–95. doi:10.2469/faj.v66.n4.1.
  • Do, B., and R. Faff. 2012. “Are Pairs Trading Profits Robust to Trading Costs?” Journal of Financial Research 35 (2): 261–287. doi:10.1111/jfir.2012.35.issue-2.
  • Elliott, R. J., J. Van Der Hoek, and W. P. Malcolm. 2005. “Pairs Trading.” Quantitative Finance 5 (3): 271–276. doi:10.1080/14697680500149370.
  • Fama, E. F., and K. R. French. 1996. “Multifactor Explanations of Asset Pricing Anomalies.” The Journal of Finance 51 (1): 55–84. doi:10.1111/j.1540-6261.1996.tb05202.x.
  • Fama, E. F., and K. R. French. 2015. “A Five-Factor Asset Pricing Model.” Journal of Financial Economics 116 (1): 1–22. doi:10.1016/j.jfineco.2014.10.010.
  • Favre, L., and J.-A. Galeano. 2002. “Mean-Modified Value-At-Risk Optimization with Hedge Funds.” The Journal of Alternative Investments 5 (2): 21–25. doi:10.3905/jai.2002.319052.
  • Ferreira, L. 2008. “New Tools for Spread Trading.” Futures: News, Analysis & Strategies for Futures, Options & Derivatives Traders 37 (12): 38–41.
  • Fischer, M., C. Köck, S. Schlüter, and F. Weigert. 2009. “An Empirical Analysis of Multivariate Copula Models.” Quantitative Finance 9 (7): 839–854. doi:10.1080/14697680802595650.
  • Gatev, E., W. N. Goetzmann, and K. G. Rouwenhorst. 2006. “Pairs Trading: Performance of a Relative-Value Arbitrage Rule.” Review of Financial Studies 19 (3): 797–827. doi:10.1093/rfs/hhj020.
  • Genest, C., K. Ghoudi, and L.-P. Rivest. 1995. “A Semiparametric Estimation Procedure of Dependence Parameters in Multivariate Families of Distributions.” Biometrika 82 (3): 543–552. doi:10.1093/biomet/82.3.543.
  • Genest, C., and B. Rémillard. 2008. “Validity of the Parametric Bootstrap for Goodness-Of-Fit Testing in Semiparametric Models.” Annales de L’Institut Henri Poincaré, Probabilités et Statistiques 44 (6): 1096–1127. doi:10.1214/07-AIHP148.
  • Genest, C., B. Rémillard, and D. Beaudoin. 2009. “Goodness-Of-Fit Tests for Copulas: A Review and A Power Study.” Insurance: Mathematics and Economics 44 (2): 199–213.
  • Genest, C., and L.-P. Rivest. 1993. “Statistical Inference Procedures for Bivariate Archimedean Copulas.” Journal of the American Statistical Association 88 (423): 1034–1043. doi:10.1080/01621459.1993.10476372.
  • Hofert, M., I. Kojadinovic, M. Mächler, and J. Yan. 2015. “R Package Copula: Multivariate Dependence with Copulas.” R package. https://cran.rproject.org/web/packages/copula
  • Huck, N. 2009. “Pairs Selection and Outranking: An Application to the S&P 100 Index.” European Journal of Operational Research 196 (2): 819–825. doi:10.1016/j.ejor.2008.03.025.
  • Huck, N. 2013. “The High Sensitivity of Pairs Trading Returns.” Applied Economics Letters 20 (14): 1301–1304. doi:10.1080/13504851.2013.802121.
  • Huck, N. 2015. “Pairs Trading: Does Volatility Timing Matter?” Applied Economics 47 (57): 6239–6256. doi:10.1080/00036846.2015.1068923.
  • Huck, N., and K. Afawubo. 2015. “Pairs Trading and Selection Methods: Is Cointegration Superior?” Applied Economics 47 (6): 599–613. doi:10.1080/00036846.2014.975417.
  • Jegadeesh, N. 1990. “Evidence of Predictable Behavior of Security Returns.” The Journal of Finance 45 (3): 881–898. doi:10.1111/j.1540-6261.1990.tb05110.x.
  • Jegadeesh, N., and S. Titman. 1993. “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.” The Journal of Finance 48 (1): 65–91. doi:10.1111/j.1540-6261.1993.tb04702.x.
  • Krauss, C. 2017. “Statistical Arbitrage Pairs Trading Strategies: Review and Outlook.” Journal of Economic Surveys. 31:513–545. doi:10.1111/joes.12153.
  • Krauss, C., D. Beerstecher, and T. Krüger. 2015. “Feasible Earnings Momentum in the U.S. Stock Market.” IWQW Discussion Paper Series, Nuremberg: University of Erlangen-Nürnberg. https://www.econstor.eu/bitstream/10419/121237/1/837249333.pdf
  • Krauss, C., and K. Herrmann. 2017. “On the Power and Size Properties of Cointegration Tests in the Light of High-Frequency Stylized Facts.” Journal of Risk and Financial Management 10 (1): 7. doi:10.3390/jrfm10010007.
  • Lehmann, B. N. 1990. “Fads, Martingales, and Market Efficiency.” The Quarterly Journal of Economics 105 (1): 1–28. doi:10.2307/2937816.
  • Liew, R. Q., and Y. Wu. 2013. “Pairs Trading: A Copula Approach.” Journal of Derivatives & Hedge Funds 19 (1): 12–30. doi:10.1057/jdhf.2013.1.
  • Mina, J., and J. Y. Xiao. 2001. Return to Riskmetrics: The Evolution of a Standard. RiskMetrics Group. New York
  • Nelsen, R. B. 2006. An Introduction to Copulas. Springer series in statistics. New York, NY:Springer. 2nd edition.
  • Patton, A. J. 2012. “A Review of Copula Models for Economic Time Series.” Journal of Multivariate Analysis 110: 4–18. doi:10.1016/j.jmva.2012.02.021.
  • Peterson, B. G., and P. Carl. 2014. “Performanceanalytics: Econometric Tools for Performance and Risk Analysis.” R package.https://cran.r-project.org/web/packages/PerformanceAnalytics
  • Pfaff, B., and A. McNeil. 2014. “R Package QRM: Provides R-Language Code to Examine Quantitative Risk Management Concepts.” R package. https://cran.r-project.org/web/packages/QRM/
  • R Core Team. 2015. “R Package Stats: A Language and Environment for Statistical Computing.” R package.
  • Rad, H., R. K. Y. Low, and R. W. Faff. 2016. “The Profitability of Pairs Trading Strategies: Distance, Cointegration, and Copula Methods.” Quantitative Finance, Forthcoming 16: 1541–1558. doi:10.1080/14697688.2016.1164337.
  • Ryan, J. A. 2015. R Package Quantmod: Quantitative Financial Modelling Framework.” R package. https://stat.ethz.ch/R-manual/R-devel/library/stats
  • Ryan, J. A., and J. M. Ulrich. 2014. “R Package xts: Extensible Time Series.” R package.https://cran.r-project.org/web/packages/xts
  • S&P Dow Jones Indices. 2015. Equity S&P 100. http://us.spindices.com/indices/equity/sp-100.
  • Schwarz, G. 1978. “Estimating the Dimension of a Model.” The Annals of Statistics 6 (2): 461–464. doi:10.1214/aos/1176344136.
  • Sklar, M. 1959. “Fonctions de répartition à n dimensions et leurs marges.” Publications de l’Institut de Statistique de L’Université de Paris, no. 8: 229–231. Publications de l’Institut de Statistique de L’Université de Paris
  • Stander, Y., D. Marais, and I. Botha. 2013. “Trading Strategies with Copulas.” Journal of Economic and Financial Sciences 6 (1): 83–107.
  • Trapletti, A., and K. Hornik. 2015. “R Package Tseries: Time Series Analysis and Computational Finance.” R package. https://cran.r-project.org/web/packages/tseries
  • Ulrich, J. 2013. “R Package TTR: Technical Trading Rules.” R package. https://cran.r-project.org/web/packages/TTR
  • Vidyamurthy, G. 2004. Pairs Trading: Quantitative Methods and Analysis. Hoboken, N.J: John Wiley & Sons.
  • Wickham, H. 2015. R Package Dplyr: A Grammar of Data Manipulation. R package. https://cran.r-project.org/web/packages/dplyr
  • Würtz, D., and T. Setz. 2014. R Package Fcopulae: Rmetrics - Bivariate Dependence Structures with Copulae. R package. https://cran.r-project.org/web/packages/fCopulae
  • Xie, W., Q. R. Liew, Y. Wu, and X. Zou. 2014. Pairs Trading with Copulas. Working paper, Nanyang Technological University.
  • Xie, W., and Y. Wu. 2013. Copula-Based Pairs Trading Strategy. In Asian Finance Association (AsFA) 2013 Conference. 10.2139/ssrn.2209209
  • Zeileis, A. 2006. “R Package Sandwich: Object-Oriented Computation of Sandwich Estimators.” R package. https://cran.r-project.org/web/packages/sandwich

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.