Publication Type

Journal Article

Publication Date

2-2012

Abstract

We improve upon the power of the statistical arbitrage test in Hogan, Jarrow, Teo, and Warachka (2004). Our methodology also allows for the evaluation of return anomalies under weaker assumptions. We then compare strategies based on their convergence rates to arbitrage and identify strategies whose probability of a loss declines to zero most rapidly. These strategies are preferred by investors with finite horizons or limited capital. After controlling for market frictions and examining convergence rates to arbitrage, we find that momentum and value strategies offer the most desirable trading opportunities.

Keywords

Bootstrap, Momentum strategy, Statistical arbitrage, Value strategy

Discipline

Corporate Finance | Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance; Econometrics

Publication

Journal of Financial Markets

Volume

15

Issue

1

First Page

47

Last Page

80

ISSN

1386-4181

Identifier

10.1016/j.finmar.2011.08.003

Publisher

Elsevier

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1016/j.finmar.2011.08.003