The Profitability of Pairs Trading in an Emerging Market Setting: Evidence from the Istanbul Stock Exchange

Yüksel A., Yüksel S. A.

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: Yes

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.