Document Type
Article
Publication Date
8-13-2011
Abstract
We improve upon the power of the statistical arbitrage test in Hogan, Jarrow, Teo, and Warachka (2004). Our methodology also allows for the evaluation of return anomalies under weaker assumptions. We then compare strategies based on their convergence rates to arbitrage and identify strategies whose probability of a loss declines to zero most rapidly. These strategies are preferred by investors with finite horizons or limited capital. After controlling for market frictions and examining convergence rates to arbitrage, we find that momentum and value strategies offer the most desirable trading opportunities.
Recommended Citation
Jarrow, R., Teo, M., Tse, Y. K., & Warachka, M. (2012). An improved test for statistical arbitrage. Journal of Financial Markets, 15(1), 47-80. https://doi.org/10.1016/j.finmar.2011.08.003
Peer Reviewed
1
Copyright
Elsevier
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Comments
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Financial Markets. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Markets, volume 15, issue 1, in 2012. https://doi.org/10.1016/j.finmar.2011.08.003
The Creative Commons license below applies only to this version of the article.