We carry out a large-scale empirical data analysis to examine the efficiency of the so-called pairs trading. On the basis of relevant three thresholds (\theta, \varepsilon,\Omega), namely, starting (\theta) , profit-taking (\varepsilon) and stop-loss (\Omega), for the `first-passage process' of the spread (gap) between two highly-correlated stocks, we construct an effective strategy to make a trade via `active' stock-pairs automatically. The algorithm is applied to about 1,784 stocks listed on the first section of the Tokyo Stock Exchange leading up to totally _{1,784 1,590,436 pairs. We are numerically confirmed that the asset management by means of the pairs trading works effectively at least for the past three years (2010-2012) data sets in the sense that the profit rate becomes positive (totally positive arbitrage) in most cases of the possible combinations of thresholds (\theta,\varepsilon,\Omega) ( `absorbing boundaries' in the literature of first-passage processes ) .
We carry out a large-scale empirical data analysis to examine the efficiency of the so-called pairs trading. On the basis of relevant three thresholds , namely, starting , profit-taking , and stop-loss for the `first-passage process' of the spread (gap) between two highly-correlated stocks, we construct an effective strategy to make a trade via `active' stock-pairs automatically. The algorithm is applied to 1,784 stocks listed on the first section of the Tokyo Stock Exchange leading up to totally 1,590,436 pairs. We are numerically confirmed that the asset management by means of the pairs trading works effectively at least for the past three years (2010-2012) data sets in the sense that the profit rate becomes positive (totally positive arbitrage) in most cases of the possible combinations of thresholds corresponding to `absorbing boundaries' in the literature of first-passage processes .
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about
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