IDEAS home Printed from https://ideas.repec.org/a/taf/apeclt/v21y2014i16p1116-1121.html
   My bibliography  Save this article

Is pairs trading profitable on China AH-share markets?

Author

Listed:
  • Mao Liang Li
  • Chin Man Chui
  • Chang Qing Li

Abstract

Using the daily data for 38 companies during the period of 2009-2013, this article examines the long-run equilibrium between the stock prices of firms dual listed on A-share market in China and H-share market in Hong Kong, and exploits the arbitrage opportunity for investors. We propose a simple self-financing trading strategy which is derived from the short-run disequilibrium price path. Our results demonstrate that cointegration and error-correction mechanism exist between the A-share and the H-share. In addition, our proposed trading strategy actually beats the markets and provides superior performance in terms of Sharp Ratio and value at risk statistics. Further analysis on international asset pricing model demonstrates that our trading strategy yields an average annualized excess return of about 17.6% when adjusted for the systematic risk.

Suggested Citation

  • Mao Liang Li & Chin Man Chui & Chang Qing Li, 2014. "Is pairs trading profitable on China AH-share markets?," Applied Economics Letters, Taylor & Francis Journals, vol. 21(16), pages 1116-1121, November.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:16:p:1116-1121
    DOI: 10.1080/13504851.2014.912030
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/13504851.2014.912030
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13504851.2014.912030?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yu, Philip L.H. & Lu, Renjie, 2017. "Cointegrated market-neutral strategy for basket trading," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 112-124.
    2. Danni Chen & Jing Cui & Yan Gao & Leilei Wu, 2017. "Pairs trading in Chinese commodity futures markets: an adaptive cointegration approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(5), pages 1237-1264, December.
    3. Xunfa Lu & Zhitao Ye & Kin Keung Lai & Hairong Cui & Xiao Lin, 2022. "Time-Varying Causalities in Prices and Volatilities between the Cross-Listed Stocks in Chinese Mainland and Hong Kong Stock Markets," Mathematics, MDPI, vol. 10(4), pages 1-19, February.
    4. Fan, Yi & Gao, Yang, 2024. "Short selling, informational efficiency, and extreme stock price adjustment," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1009-1028.
    5. Marianna Brunetti & Roberta De Luca, 2023. "Pairs trading in the index options market," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 145-173, March.
    6. Krauss, Christopher, 2015. "Statistical arbitrage pairs trading strategies: Review and outlook," FAU Discussion Papers in Economics 09/2015, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    7. Andreas Mikkelsen, 2018. "Pairs trading: the case of Norwegian seafood companies," Applied Economics, Taylor & Francis Journals, vol. 50(3), pages 303-318, January.
    8. Qiuyuan Lei & Muhammad Umer Quddoos Attari & Mustansar Hayat & Muhammad Munir Ahmad & Abdul Haseeb & Amir Rafique, 2023. "Mapping the Themes Underlying the Literature on Cross-Listing of Shares—A Contemporary Corporate Strategy of Sustainable Growth," Sustainability, MDPI, vol. 15(12), pages 1-26, June.
    9. Fernando Caneo & Werner Kristjanpoller, 2021. "Improving statistical arbitrage investment strategy: Evidence from Latin American stock markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4424-4440, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:21:y:2014:i:16:p:1116-1121. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEL20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.