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

Muslumov A., Yüksel A., Yüksel S. A.

Empirical Economics Letters, vol.8, no.5, pp.1-6, 2009 (Peer-Reviewed Journal)

  • Publication Type: Article / Article
  • Volume: 8 Issue: 5
  • Publication Date: 2009
  • Journal Name: Empirical Economics Letters
  • Journal Indexes: EconLit
  • Page Numbers: pp.1-6
  • 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). Distancebased 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 selffinancing portfolios lack economic significance considering transaction and shortselling costs.