An extract from my book, Quantitative Research and Trading, to be published in 2017.

Home Archive by Category "Cointegration"

JonathanCointegration, Correlation, Dickey-Fuller, Pairs Trading, Phillips-Perron, Spread Trading, Statistical ArbitrageCointegration, CVX, Dickey-Fuller, Oil Stocks, Pairs Trading, Phillips-Perron, Statistical Arbitrage, XOM

An extract from my book, Quantitative Research and Trading, to be published in 2017.

JonathanCointegration, ETFs, Johansen, Long/Short, Portfolio Management, Statistical ArbitrageCointegration, ETF, Long/Short, Portfolio Management, Statistical Arbitrage

Recently I have been working on the problem of how to construct large portfolios of cointegrated securities. My focus has been on ETFs rather that stocks, although in principle the methodology applies equally well to either, of course. My preference for ETFs is due primarily to the fact that it is easier to achieve a…

JonathanCointegration, Kalman Filter, Pairs Trading, Statistical ArbitrageCointegration, Kalman Filter, Statistical Arbitrage

I tend not to get involved in Q&A with readers of my blog, or with investors. I am at a point in my life where I spend my time mostly doing what I want to do, rather than what other people would like me to do. And since I enjoy doing research and trading,…

I was asked by a reader if I could illustrate the application of the Kalman Filter technique described in my previous post with an example. Let’s take the ETF pair AGG IEF, using daily data from Jan 2006 to Feb 2015 to estimate the model. As you can see from the chart in Fig. 1, the…

JonathanCointegration, Econometrics, Johansen, Matlab, Mean Reversion, Pairs Trading, Statistical Arbitrage, Strategy Development, Systematic StrategiesCointegration, Statistical Arbitrage, Stocks

In his latest book (Algorithmic Trading: Winning Strategies and their Rationale, Wiley, 2013) Ernie Chan does an excellent job of setting out the procedures for developing statistical arbitrage strategies using cointegration. In such mean-reverting strategies, long positions are taken in under-performing stocks and short positions in stocks that have recently outperformed. I will leave a…

JonathanCointegration, Correlation, Portfolio Management, Statistical ArbitrageCointegration, Correlation, Equity Portfolios

The use of correlations is widespread in investment management theory and practice, from the construction of portfolios to the design of hedge trades to statistical arbitrage strategies. A common difficulty encountered in all of these applications is the variation in correlation: assets that at one time appear to be suitably uncorrelated for hedging purposes, may…

JonathanAsian markets, Cointegration, Econometrics, Emerging Markets, FIGARCH, Forecasting, Fractional Cointegration, Fractional Integration, Granger Causality, Hurst Exponent, Long Memory, REGARCHARFIMA, Emerging Markets, Fractional Cointegration, Fractional Integration, Granger Causality, KOSPI, Long Memory, MultiFactor Models, REGARCH, Regime Shifts, Volatility

The great majority of empirical studies have focused on asset markets in the US and other developed economies. The purpose of this research is to determine to what extent the findings of other researchers in relation to the characteristics of asset volatility in developed economies applies also to emerging markets. The important characteristics observed in…

JonathanBlack Noise, Cointegration, Derivatives, Direction Prediction, Dispersion, Forecasting, Fractional Brownian Motion, Fractional Cointegration, Fractional Integration, Long Memory, Mean Reversion, Momentum, Multifactor Models, Options, Pink Noise, REGARCH, Regime Shifts, Volatility Modeling, White NoiseBlack Noise, Cointegration, Direction Prediction, Fractional Brownian Motion, Fractional Cointegration, Fractional Integration, GARCH, Long Memory, Mean Reversion, Momentum, MultiFactor Models, Pink Noise, REGARCH, Regime Shifts, Volatility, Volatility Dynamics, White Noise

I am planning a series of posts on the subject of asset volatility and option pricing and thought I would begin with a survey of some of the central ideas. The attached presentation on Modeling Asset Volatility sets out the foundation for a number of key concepts and the basis for the research to follow. Perhaps…

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