Category Archives: Cointegration

Developing Long/Short ETF Strategies

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 … Continue reading

Posted in Cointegration, ETFs, Johansen, Long/Short, Portfolio Management, Statistical Arbitrage | Comments Off

Successful 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 … Continue reading

Posted in Cointegration, Kalman Filter, Pairs Trading, Statistical Arbitrage | Comments Off

ETF Pairs Trading with the Kalman Filter

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 … Continue reading

Posted in Cointegration, Matlab, Statistical Arbitrage | Comments Off

Developing Statistical Arbitrage Strategies Using Cointegration

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 … Continue reading

Posted in Cointegration, Johansen, Matlab, Mean Reversion, Pairs Trading, Statistical Arbitrage, Strategy Development, Systematic Strategies | Comments Off

The Correlation Signal

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 … Continue reading

Posted in Cointegration, Correlation, Portfolio Management, Statistical Arbitrage | Comments Off

Volatility Forecasting in Emerging Markets

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 … Continue reading

Posted in Asian markets, Cointegration, Econometrics, Emerging Markets, FIGARCH, Forecasting, Fractional Cointegration, Fractional Integration, Granger Causality, Hurst Exponent, Long Memory, REGARCH | Tagged , , , , , , , , , , | Comments Off

Modeling Asset Volatility

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 … Continue reading

Posted in Black 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 Noise | Tagged , , , , , , , , , , , , , , , , | Comments Off