A1683
Title: Pairs trading, technical analysis and data snooping: Mean reversion vs momentum
Authors: Ioannis Psaradellis - University of Liverpool (United Kingdom)
Jason Laws - University of Liverpool (United Kingdom)
Athanasios Pantelous - Monash University (Australia) [presenting]
Georgios Sermpinis - University of Glasgow (United Kingdom)
Abstract: The aim is to examine technical trading rules performance of the statistical arbitrage investment strategy, pairs trading, using daily data over the period 1990-2016 for 15 commodity, equity and famous currency pairs. Adopting a previous false discovery rate test to control for data snooping bias and exercising 18,412 technical trading rules, we find evidence of significant predictability and excess profitability, especially for commodity spreads, where the best performing strategy generates an annualized mean excess return of 17.6\%. In addition, we perform an out-of-sample analysis to cross-validate our results in different subperiods. We find that whilst the profitability of rules based on technical analysis exhibits a downward trend over the sample, the opportunities for pairs trading remains has increased in certain cases.
