Algorithmic pairs trading: empirical investigation of exchange traded funds

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi Sipilä, Miika 2013-06-25T07:16:09Z 2013-06-25T07:16:09Z 2013
dc.description.abstract ALGORITHMIC PAIRS TRADING: EMPIRICAL INVESTIGATION OF EXCHANGE TRADED FUNDS PURPOSE OF THE STUDY The objective of this thesis is to study whether the algorithmic pairs trading with Exchange Traded Funds (ETFs) generates abnormal return. Particularly, I firstly study whether the trading strategy used in this thesis generates higher return than the benchmark index MSCI World and secondly even higher return than stocks. DATA AND METHODOLOGY The dataset includes over 66,000 possible pairs of ETFs worldwide from 2004 to 2012. In addition, I use the empirical results from the relevant papers in comparison. To test the hypothesis, I first apply cointegration tests to identify ETFs to be used in pairs trading strategies. Subsequently, I select ETF pairs to compose a pairs trading portfolio based on profitability and finally compare the results to the benchmark index and the empirical results of the relevant papers. RESULTS The empirical results of this thesis show that pairs trading with ETFs generate significant abnormal return with low volatility from the eight year trading period compared to the benchmark index as well as stocks traded with pairs trading strategy. The cumulate net profit is 105.43% and an annual abnormal return of 27.29% and with volatility of 10.57%. Furthermore, the results confirmed market neutrality with no significant correlation with MSCI World index. en
dc.format.extent 70
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.title Algorithmic pairs trading: empirical investigation of exchange traded funds en
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Business en
dc.contributor.department Department of Finance en
dc.contributor.department Rahoituksen laitos fi
dc.subject.keyword algorithmic trading
dc.subject.keyword cointegration
dc.subject.keyword exchange traded funds
dc.subject.keyword market neutral strategy
dc.subject.keyword pairs trading
dc.subject.keyword statistical arbitrage
dc.identifier.urn URN:NBN:fi:aalto-201306267090
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon osakemarkkinat
dc.subject.helecon stock markets
dc.subject.helecon osakkeet
dc.subject.helecon shares
dc.subject.helecon strategia
dc.subject.helecon strategy
dc.ethesisid 13232 2013-06-13
dc.location P1 I

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