| Paired trading is a market-neutral investment strategy.The idea of paired trading strategies originated on Wall Street,the financial center of the United States.In the early 1920s,trader Jesse laurlivermore first adopted Sister Stocks in an investment practice.With the development of quantitative finance and computer technology,paired trading strategies gained great attention in the United States in the 1980s.The ups and downs of individual stock prices are not the focus of paired trading.The common practice of paired trading is to look for two stocks in the stock market that have a long-term equilibrium to form a pair.In the process of stock market operation,two stocks with long-term equilibrium relationship tend to deviate from the equilibrium value in a short period of time.At this time,the stock with relatively strong price trend should be shorted,and the stock with relatively weak price trend should be shorted.Among them,the number of stocks to be shorted should be kept in a certain proportion.When the two stock prices return to the equilibrium value,the stock price should be liquidated,so as to obtain the yield of stock price difference.On the whole,the returns of paired trading strategies are stable and the risks are relatively controllable.The short selling mechanism is a necessary condition for the operation of paired trading strategy in securities market.China's capital market construction started late,in order to adapt to the requirements of China's sustained economic growth,the regulatory authorities have also carried out a series of institutional improvements to the securities market.With the improvement of market supervision system and transaction system,and the gradual maturity of market participants,the maturity of China's capital market has increased greatly.Since 2010,with China's futures market and stock market margin shorting mechanism,promote and perfect matching trading strategy began to concern in our country,especially in the futures market with the advantages of short mechanism and high-frequency trading,domestic scholars in the futures market as the research target of a lot of empirical research on pairs trading strategy.The research object of this paper is the banking stocks listed on Shanghai and shenzhen a-shares,and the empirical study is conducted on the paired portfolio of 20 stocks that support margin trading and short selling.The daily closing data of stocks during the study period were obtained from the convergent database.The whole year of January 1,2018,solstice,December 31,2018,was selected as the in-sample interval,and the whole year of January 1,2019,solstice,December 31,2019,was selected as the out-of-sample interval.The implementation of paired trading strategy is carried out in two modules:one is the selection of stock trading pairs.The second is the formulation of detailed rules of paired trading strategy.In the stage of stock selection,this paper adopts the method of minimum distance method and co-integration test.By the minimum distance method with a standard deviation of the price at the beginning of sum of squares SSDX,Y less than or equal to 0.1 in pairs,then through two-step E-G for 5 pair of cointegration test,validated that the bank of China and bank of communications has the long-term equilibrium relation,again through the error correction model to simulate the two stocks short term deviation,access to the bank of China and bank of communications trading positions of 1:1 ratio coefficient.2.This paper adopts two methods in developing a pair trading strategy.One is the traditional model,which assumes that the financial time series satisfies the characteristic of constant variance,and takes the standard deviation of fixed value as the threshold value of the trading signal.One is to simulate with GARCH model.Considering the heteroscedasticity of financial time series,GARCH model is used to simulate the time-varying labeling difference of the spread series,and the time-varying standard deviation of the spread time series is used as the threshold value of the trading signal.In terms of trading strategy setting,this paper selects deviation of 1.5 times standard deviation as the opening signal,deviation of 0.2 times standard deviation as the closing profit signal,and deviation of 2.5 times standard deviation as the forced closing stop signal.Through distance method and co-integration method to extract the bank of China and bank of communications as the deal,and set the corresponding trading strategies,this paper respectively to the traditional model and GARCH model within the sample and sample has carried on the back,back to the test results show that the two models have been good earnings,proved that the pairs trading strategy in China's a-share market banking can be implemented.At the same time,through comparative analysis,it can be seen that GARCH model has better characteristics of returns and risks.GARCH model achieves higher cumulative returns and more stable performance per transaction.It shows that GARCH model can better simulate the fluctuation characteristics of financial time series,and better empirical results can be obtained by pairing trading strategies. |
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