The Profitability of Pairs Trading in an Emerging Market Setting: Evidence from the Istanbul Stock Exchange
Empirical Economics Letters, vol.8, pp.1-5, 2009 (Peer-Reviewed Journal)
- Publication Type: Article / Article
- Volume: 8
- Publication Date: 2009
- Journal Name: Empirical Economics Letters
- Page Numbers: pp.1-5
- TED University Affiliated: No
Abstract
This study measures the performance of the pairs trading strategy in an emerging stock market setting, using the
methodology of Gatev et al. (2006). Distance-based pairs trading methodology gives an average excess return of
5.4 % for the top 20 best pairs portfolios. Although statistically significant, these results for the self-financing portfolios
lack economic significance considering transaction and short-selling costs.