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Pairs selection and outranking: An application to the S&P 100 index

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  • Huck, Nicolas

Abstract

Pairs trading is a popular quantitative speculation strategy. This article proposes a general and flexible framework for pairs selection. The method uses multiple return forecasts based on bivariate information sets and multi-criteria decision techniques. Our approach can be seen as a sort of forecast combination but the output of the method is a ranking. It helps to detect potentially under- and overvalued stocks. A first application with S&P 100 index stocks provides promising results in terms of excess return and directional forecasting.

Suggested Citation

  • Huck, Nicolas, 2009. "Pairs selection and outranking: An application to the S&P 100 index," European Journal of Operational Research, Elsevier, vol. 196(2), pages 819-825, July.
    • Handle: RePEc:eee:ejores:v:196:y:2009:i:2:p:819-825
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