Do Business Cycles Exhibit Beneficial Information for Portfolio Management? An Empirical Application of Statistical Arbitrage
An advantageous statistical arbitrage strategy should exhibit a zero-cost trading strategy for which the expected payoff should be positive. In practical applications, however, the abnormal returns often are out-of-sample not significant. The statistical model being suggested here results in an estimated portfolio exhibiting in-sample a cointegration relationship with the artificial stock index. The portfolio returns exhibited out-of-sample a mean of 10.44% p.a., whereas the volatility was one third lower in comparison to the benchmark's volatility. Accounting for trading costs of 2.94% p.a. on average, the annual returns of the estimated portfolio are out-of-sample still 6.83% higher than the market returns. As a result, the model involves implicitly advantageous market timing.
Year of publication: |
2010
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Authors: | Grobys, Klaus |
Published in: |
The Review of Finance and Banking. - Facultatea de Finante, Asigurari, Banci şi Burse de Valori. - Vol. 02.2010, 1, p. 041-056
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Publisher: |
Facultatea de Finante, Asigurari, Banci şi Burse de Valori |
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