Whether Stock Market Structure Will Influence the Outcome of Pure Statistical Pairs Trading?

Abstract

To investigate whether stock market structure wll influence the outcome of pure statistical pairs trading, explore how much the effect is, the article based on Shanghai, Shenzhen stock market in China, Hong Kong stock market from 2004 to 2010, implemented the GGR trading strategy, paired the sample stocks with pure statistical pairs trading method, calculated the statistical characters and the Annual Rate of Return. It was discovered that most of the statistical characters in the the three markets were different. On one side as we all regarded, the more efficient the stock market was, the less profit the pairs trading could get, the trading outcome in Hong Kong stock market had confirmed that the efficient market was not fit for pairs trading. On the other hand in contrast to our regard, HSI's mean position time was longer than SSE's in Shanghai and as SCI's in Shenzhen. The position time in efficient stock market was not necessary less than the position time in developing markets. Stock market structure could influence the outcome of pure statistical pairs trading. We could improve the outcome of the pure statistical pairs trading by choosing the counties and stock markets. Pure statistical pairs trading was fit to be executed in the less efficient stock markets. But why and how the stock market influence the outcome of pure statistical pairs trading would be the further and harder topics to be investigated.