An Empirical Investigation of Pairs Trading Strategy InTaiwan’s Equity Market

• Main Authors: Chun-Han Tseng, 曾俊涵
• Other Authors: Chou-Wen Wang
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/42987884767018158945

碩士 === 國立高雄第一科技大學 === 財務管理所 === 93 === The USA equity market had turn to bearish after the Internet bubble was broken at April, 2004. Traditional mutual fund got a poor performance due to their relative return strategy. At this moment, some special aspect that focus on absolute return strategy that so called the “Hedge fund” had been popular by many investors. This article is the first one that using the “Pairs Trading” strategy to testify Taiwan’s equity market. We use MSCI stock to be selected, chose 14 pairs to calculate their. β by using OLS equation embed in EXCEL. Then estimate their liner regression and use 80% confidence level to be buying or selling signal. 　　The whole estamiated period was from 1999 to 2003 and picked 30days, 90days, 180days,360days to forecast the day behind 30days, 90days, 180days, 360days　respectively .Total sample size is 1120. 　　We sum of the pairs annualized return then made a ranking. After that we calcaulated the average of annualized return and standard deveation of each time horizon pairs ranking.We also draw a chart about the actual profit number of each pairs.So we could chose which time horizon we can adopt choice in the future. The result is as below： (1)We earn all positive average annualized returns in all 16 time horizon.The estimate number had already considered all transaction cost. (2)The range of average annualized returns and standard deviation at 16 time horizon are between +55.16% and +110.54%, 1.8322 and 0.5498 respectively. (3)The range of actual profit numbers and the average are +5738.52,-7285.68 and -203.4,+119.69 respectively. (4)We got a poor performance that using shorter data to be forecast than using longer data. We found out that if the longer of data estimated the better of the average annualized returns. (5)The worst time horizon is to use 30days data to forecast 360days return, the maxium and minimum of actual profit numbers show up in this time horizon each. The mean of actual profit numbers is -203.4.This is the worst case in all time horizon. (6) The best time horizon that using pairs trading strategy is use 360days data to forecast 360 days.The average annualized returns is 84.23% and standard devation is 0.7216.We divided the both numbers.The result is 1.1672.That means we can earn 1.1672% return when we take every unit of risk.And the actual profit numbers are 119.69, highest of all time horizon. (7)When we using pairs trading strategy by estimate the 360days data, we can get the best performance.We earn all positive average actual profit numbers in this time horizon.