Pairs Trading has become a well-known statistical arbitrage for the use of cointegration tests in the field of econometrics and economics. In this thesis, the selected market to consider is the cryptocurrency market, and therefore compare the three best-known approaches of cointegration tests: the Augmented Dickey-Fuller test, Johansen’s test, and Phillips Peron’s test. The pairs are tested for cointegration through the 3-month and a 6-month period, and later traded in a window of the same length. For the study, it is required to have 10 cryptocurrencies with the highest market capitalization between January 1st,2022 to July 1st, 2023. Each portfolio’s performance is evaluated toward the appropriate buy-and-hold benchmark. Although all portfolios outperformed the buy-and-hold benchmark, with and without transaction costs set to 1%, it is not possible to conclude if the 6-month trading and testing procedure yielded a higher return rather to the 3-month procedure. From the three proposed approaches, the Augmented Dickey-Fuller test was best at predicting a cointegrated relationship, with an excess mean return of 268,68%.
Date of Award | 17 Jul 2024 |
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Original language | English |
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Awarding Institution | - Universidade Católica Portuguesa
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Supervisor | Paulo Alves (Supervisor) |
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- Pairs trading
- Cryptocurrencies
- Cointegration
Pairs trading: cointegration-based methods applied to the cryptocurrency market
Lebre, M. S. N. G. (Student). 17 Jul 2024
Student thesis: Master's Thesis