Pairs trading
: potenciais melhorias à sua implementação

  • Levi Pedro Santos Leandro (Student)

Student thesis: Master's Thesis

Abstract

In this study, potential improvements to the pairs trading strategy proposed by Gatev et al. (2006) are presented. By using stocks from the S&P 500 index during the period from 2012 to 2022, the strategy achieved an average semi-annual return of 10.20%. Furthermore, it supported the idea already present in the literature that the strategy performs better during economic crises, as it recorded its highest return during the period of the COVID-19 pandemic. The first modification applied to this strategy involved using bid and ask prices instead of daily closing prices, which resolved the issue of "1 waiting day" to open and close positions as employed by Gatev et al. (2006). Additionally, in order to improve the strategy's return, three different methods were practiced: a strategy with a 5-day stop loss, a strategy with a 5-day stop win, and a strategy combining both of the previous methods. It was concluded that the application of the stop win method, activated after 5 consecutive days of gains, generated the best results.
Date of Award26 Oct 2023
Original languagePortuguese
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorPaulo Alves (Supervisor)

Designation

  • Mestrado em Finanças

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