Statistical arbitrage is a popular trading strategy employed by hedge funds and proprietary trading desks, built on the statistical notion of cointegration to identify profitable trading opportunities.
Given the revolutionary shift in markets represented by high frequency trading HFT , it is unsurprising that risks and rewards have changed. This paper explores the effect of HFT volume on statistical arbitrage profitability, and reports three trends in the data. First, higher levels of comovement due to HFT cause more stock pairs to be cointegrated. Second, profitability from statistical arbitrage remains steady among the deciles with the most HFT.
Third, the range of profitability is larger in more recent years. These findings suggest that HFT increases correlation and volatility and have a direct impact on statistical arbitrage trading strategies. College of Business Administration P.
Subscribe to this free journal for more curated articles on this topic. Subscribe to this fee journal for more curated articles on this topic. Selection of a Portfolio of Pairs Based on Cointegration: A Statistical Arbitrage Strategy. Medium Frequency Portfolio Trading. The Case of Gold and Silver: A New Algorithm for Pairs Trading. Advances in High Frequency Strategies. By Marcos Lopez De Prado.
Statistical Arbitrage in the U. By Marco Avellaneda and Jeong-hyun Lee. Learning and Trusting Cointegration in Statistical Arbitrage. Implementation of Pairs Trading Strategies. Cookies are used by this site. To decline or learn more, visit our Cookies page.
This page was processed by apollo4 in 0. Skip to main content. Abstract Statistical arbitrage is a popular trading strategy employed by hedge funds and proprietary trading desks, built on the statistical notion of cointegration to identify profitable trading opportunities.