Profitability of pairs trading strategy in an illiquid market with multiple share classes
JP Broussard, M Vaihekoski - Journal of International Financial Markets …, 2012 - Elsevier
We investigate the practical issues of implementing the self-financing pairs portfolio trading
strategy presented by Gatev et al.(2006). We also provide new evidence on the profitability
of pairs trading under different weighting structures and trade initiation conditions. Using
data from the Finnish stock market over the period 1987–2008, we find pairs trading to be
profitable even after allowing for a one day delay in the trade initiation after the signal. On
average, the annualized return can be as high as 12.5%, though requiring trading on days a …
strategy presented by Gatev et al.(2006). We also provide new evidence on the profitability
of pairs trading under different weighting structures and trade initiation conditions. Using
data from the Finnish stock market over the period 1987–2008, we find pairs trading to be
profitable even after allowing for a one day delay in the trade initiation after the signal. On
average, the annualized return can be as high as 12.5%, though requiring trading on days a …
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