An efficiency test based on statistical arbitrage tecniques

J. P. Ramos Requena, M. A. Sánchez Granero, K. Balladares, J. E. Trinidad Segovia

In this paper we propose a novel approach to study the degree of development of a financial market. This test is based on a statistical arbitrage technique known as Pairs Trading which is a relative value trading strategy consisting in taking a position in a pair of stocks that are chosen to have similar characteristics and taking a long position in one stock and a short position in the other stock. We use an approach introduce in Ramos et al. (2007) based on the evolution of the Hurst Exponent of a pair. We will show how in emerging markets this trading strategy is profitable but not in developed markets, which is concordance with the weak form of efficiency.

Keywords: Financial Markets; Pairs Trading; Hurst Exponent

SI-MCEE-2 Invited Session. Quantitative Methods for Economy and Companies
September 5, 2019  2:45 PM
I2L5. Georgina Blanes building

D. R. Santos Peñate, C. Florido de la Nuez, R. Suárez Vega

J. García Pérez, C. García García, R. Salmerón Gómez