Pairs Trading Based on Empirical Mode Decomposition (EMD)
محل انتشار: مجله مالی ایران، دوره: 7، شماره: 3
سال انتشار: 1402
نوع سند: مقاله ژورنالی
زبان: انگلیسی
مشاهده: 24
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شناسه ملی سند علمی:
JR_IJFIFSA-7-3_005
تاریخ نمایه سازی: 29 اردیبهشت 1403
چکیده مقاله:
As a trading strategy, pairs trading is performed based on the arbitrage opportunities extracted from statistical models. It is an outcome of the distance between an asset pair and the equilibrium state. Consequently, selecting a pair with the potential to form long-term relationships and reverting to the mean is the main challenge associated with pair trading. Cointegration is one of the most famous statistical tests for selecting a pair's trading. The present study uses Empirical Mode Decomposition (EMD) to decompose the time series of an asset pair price into its constituent elements (intrinsic mode functions). This study examined the property of cointegration across different levels and the corresponding levels of ۲- time series to find the cointegration pairs in different decomposition levels and finally examine the resulting profitability. To this end, the profitability of the pairs trading system related to ۱۴ stocks of the Tehran Stock Exchange throughout ۲۰۱۲-۲۰۲۱ was investigated based on EMD. The results showed that the outputs are pretty noticeable for the first level of decomposition (the first intrinsic mode function), and the number of trading opportunities increased by more than two times compared to the normal pair trading with cointegration; the daily returns increased by four times; and the Sharpe ratio increased by about two times compared to the normal pairs trading. The system formed based on the second mode function also outperformed the normal cointegration, and the performance of the third intrinsic mode function is almost on par with that of cointegration. Moreover, the mean transaction duration decreased remarkably in the first and second mode functions.
کلیدواژه ها:
نویسندگان
Bahareh Zarintaj
PhD Candidate of Industrial Management, Department of Management, Dehaghan Branch, Islamic Azad University, Dehaghan, Iran.
Saeed Aghasi
Assistant Professor, Department of Management, Dehaghan Branch, Islamic Azad University, Dehaghan, Iran.
Forozan Baktash
Assistant Professor. Department of Economy, Dehaghan Branch, Islamic Azad University, Dehaghan, Iran.
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