TITLE

Pairs Trading: Performance of a Relative-Value Arbitrage Rule

AUTHOR(S)
Gatev, Evan; Goetzmann, William N.; Rouwenhorst, K. Geert
PUB. DATE
September 2006
SOURCE
Review of Financial Studies;Fall2006, Vol. 19 Issue 3, p797
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
We test a Wall Street investment strategy, "pairs trading," with daily data over 1962-2002. Stocks are matched into pairs with minimum distance between normalized historical prices. A simple trading rule yields average annualized excess returns of up to 11% for self-financing portfolios of pairs. The profits typically exceed conservative transaction-cost estimates. Bootstrap results suggest that the "pairs" effect differs from previously documented reversal profits. Robustness of the excess returns indicates that pairs trading profits from temporary mispricing of close substitutes. We link the profitability to the presence of a common factor in the returns, different from conventional risk measures.
ACCESSION #
22502516

 

Related Articles

  • Is this discount broker oversold? Boorstin, Julia // Fortune International (Europe);3/7/2005, Vol. 151 Issue 4, p81 

    Looks at the financial performance of online broker Ameritrade. Report that Ameritrade earned strong profits in 2004; Details of Ameritrade's stock price; Impact of competitors on Ameritrade's profitability; Discussion of rising profits in the online brokerage industry.

  • Is this discount broker oversold? Boorstin, Julia // Fortune;3/7/2005, Vol. 151 Issue 5, p162 

    Looks at the financial performance of online broker Ameritrade. Report that Ameritrade earned strong profits in 2004; Details of Ameritrade's stock price; Impact of competitors on Ameritrade's profitability; Discussion of rising profits in the online brokerage industry.

  • Independent boards not all they're cracked up to be.  // Accounting Today;11/15/2010, Vol. 24 Issue 15, p21 

    The article presents a study highlighting the highest proportion of independent directors in financial firms that suffered the most from stock-price declines during the economic crisis. The study involved 296 major financial institutions around the world. Another finding is the tendency of...

  • Earnings Double At New Century. Hochstein, Marc // American Banker;4/23/2004, Vol. 169 Issue 78, p8 

    New Century Financial Corp. earned $87 million in the first quarter, nearly double the year-earlier figure. Per-share earnings jumped 65%, to $2.03, the Irvine, California, subprime lender said Thursday. The average estimate from analysts surveyed by Thomson First Call was $1.86. New Century...

  • Schwab Misses Target As Net Income Fell 10%. Gottlieb, Jenna // American Banker;7/21/2004, Vol. 169 Issue 139, p9 

    Announces that Charles Schwab Corp. missed analysts' earnings estimates for the second quarter of 2004. Effect of a slowdown in retail trading and its new lower fee schedule on the company's earnings; Impact of the announcement to rehire Charles Schwab, the founder, as chief executive; Comments...

  • Analysts Cautious About TSYS Earnings. Wade, Will // American Banker;10/21/2004, Vol. 169 Issue 203, p8 

    Reports that Smith Barney downgraded shares of Total Systems Services Inc. despite its solid performance in the third quarter of 2004. How Ryan Beck & Co. cut its full-year earnings forecast; Financial performance of Total Systems in the third quarter, including statistics; Analysis of the...

  • SVB Says Lending, Deposits Beat Forecast. Cole, Jim // American Banker;9/16/2005, Vol. 170 Issue 179, p20 

    Reports that SVB Financial Group of Santa Clara, Calif., expects third-quarter results to come in much stronger than previously forecasted according to chief financial officer Jack Jenkins-Stark. Increase in the company's stock prices; Expectations that average deposits will be stronger than in...

  • Sluggish Chargeoffs, Capital Dearth Cited at Guaranty. Fajt, Marissa // American Banker;3/23/2009, Vol. 174 Issue 55, p9 

    The author reports on financial losses that are expected to be announced by Guaranty Financial Group Inc. for 2008. The possibility that Guaranty Financial may need to raise additional capital is mentioned. Decreases that have occurred in the company's stock prices are discussed. The opinions of...

  • Discover Financial DFS. Kon, Michael // Morningstar StockInvestor;Sep2012, Vol. 12 Issue 3, p22 

    The article offers information on the company Discover Financial Services and discusses financial services provided by the company. It also informs about its stock price and discusses financial forecasting for the company. It also provides statistics of its financial performance for past years...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics