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High-frequency Pairs Trading on a Small Stock Exchange

Author

Listed:
  • Andreas Mikkelsen

    (Nord University Business School, 8049 Bod , Norway,)

  • Frode Kj rland

    (NTNU Business School, Norwegian University of Science and Techcology, 7491 Trondheim, Norway)

Abstract

We study the performance of a high-frequency pairs trading strategy on the 100 most liq- uid stocks, in 15-minute intervals, on a small commodity dominated stock exchange (Oslo Stock Exchange) using a comprehensive dataset from January 2012 to March 2016. We use both the dis- tance and cointegration approach. Moreover, we let the formation (trading) period vary between two (one), four (two), and six (three) weeks, in order to test the impact on the pairs trading profit. We find that the distance and cointegration approaches both have their strenghts and weaknesses. In addition, we find that a shorter formation (and trading) period yields better results. As a further contribution to the literature, our findings imply that a simple static pairs trading strategy, still is profitable using high-frequency data. Further, our results show better performance in a bull market than in a sideways-moving, volatile market.

Suggested Citation

  • Andreas Mikkelsen & Frode Kj rland, 2018. "High-frequency Pairs Trading on a Small Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 78-88.
    • Handle: RePEc:eco:journ1:2018-04-11
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    References listed on IDEAS

    as
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    3. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    4. Matthew Clegg & Christopher Krauss, 2018. "Pairs trading with partial cointegration," Quantitative Finance, Taylor & Francis Journals, vol. 18(1), pages 121-138, January.
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    More about this item

    Keywords

    Finance; Pairs Trading; Statistical Arbitrage; High-Frequency Trading; Distance Method; Cointegration;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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