Does Simple Pairs-Trading Strategy Still Work in Taiwan Stock Market?

• Main Authors: TZU-HSUAN LI, 李梓萱
• Other Authors: Jai-Jen Wang
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/42078491999634368096

碩士 === 逢甲大學 === 財務金融學所 === 99 === Abstract The pairs-trading strategy was developed since 1980s in Wall Street, and has been being popular among institutional investors until now. Nevertheless, its profitability seems decreasing owing to increasing information circulation and competitiveness. This thesis implements the pairs-trading rule empirically in Taiwan stock market and observes its profitability pattern. We use component stocks of TWSE Taiwan 50 index in the sampling period from 2000/01/01 to 2011/03/31. Four bullish and bearish sub-periods are identified with the settings of 250-day formation- and 125-day trading-windows. We use two-standard-deviations criterion to initiate the trading. Traditional, electronic, and financial pairs are classified to differentiate industrial effects. The zero-crossing frequency information is adopted to advance the profitability and stability of the pairs-trading strategy. We find that it performs well in Taiwan, in particular in bearish sub-periods. However, the profitability of pairs-trading strategy significantly decreases over time, which is consistent with the assertion that the efficient degree of Taiwan market and the competitive degree among investors are increasing.