Publication Type
Journal Article
Version
acceptedVersion
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
Citation
JARROW, Robert; TEO, Melvyn; TSE, Yiu Kuen; and WARACHKA, Mitch.
An Improved Test for Statistical Arbitrage. (2012). Journal of Financial Markets. 15, (1), 47-80.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/2966
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.finmar.2011.08.003
Included in
Corporate Finance Commons, Finance and Financial Management Commons, Portfolio and Security Analysis Commons