Pairs trading strategy of ETF based on mixture Copula
SHEN Yinfang1, ZHENG Xuedong1, XU Xinzhe2
1. School of Date Sciences, Zhejiang University of Finance and Economics, Hangzhou 310018, China; 2. Antai College of Economics & Management, Shanghai Jiao Tong University, Shanghai 200052, China
Abstract：Pairs trading is a well-acknowledged speculative investment strategy that is widely used in the financial markets. Distance and co-integrated methods are the most commonly implemented pairs of trading strategies. However, these two approaches are only able to describe the linear dependency structure between stocks. A new pairs of trading strategies based on mixture Copula method is produced. Three elementary Archimedean Copula families are used to construct mixture Copulas, which describe the conditional dependence between assets. In the high frequency exchange traded fund (ETF) market, it is deemed to catch more dependence informations and generate more trading opportunities.
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2016, Vol. 43 
