• ISSN: 2010-023X
    • Frequency: Bimonthly
    • DOI: 10.18178/IJTEF
    • Editor-in-Chief: Prof.Tung-Zong (Donald) Chang
    • Executive Editor: Ms. Cherry L. Chen
    • Abstracting/ Indexing: Engineering & Technology Digital Library, ProQuest, Crossref, Electronic Journals Library, DOAJ , EBSCO, and Ulrich's Periodicals Directory
    • E-mail: ijtef@ejournal.net
IJTEF 2017 Vol.8(2): 67-72 ISSN: 2010-023X
DOI: 10.18178/ijtef.2017.8.2.541

Comparison of Statistical Arbitrage in Developed and Emerging Markets

Gabriel Visagie and Alwyn Hoffman
Abstract—Statistical arbitrage covers a variety of trading strategies that are based on statistical modelling and are usually characterized by a near market-neutral trading book. Statistical arbitrage strategies are generally used by hedge funds and retail traders with the objective of achieving excess returns regardless of the market regime. In this study we examine the performance of two statistical arbitrage systems in developed markets (Germany, Japan and the United States) and emerging markets (China and South Africa) over the period of 2006 to 2016. We investigate whether the performance of these systems are affected by different market regimes and whether excess returns have been altered since the financial crisis in 2008-2009. We also compare the performance of these systems in developed and emerging markets. Our results indicate that statistical arbitrage systems produce higher excess returns during non-trending markets and that these systems generally provide higher returns in emerging markets. The overall performance of the statistical arbitrage systems have weakened since the financial crisis, but a noticeable improvement in excess returns produced is apparent in the last three years of our study.

Index Terms—Financial modelling, statistical arbitrage, algorithmic trading, pairs trading.

The authors are with the Computer and Electronic Engineering Department, North West University (Potchefstroom Campus), Potchefstroom, NW 2531 South Africa (e-mail: Gabriel.Visagie1@gmail.com, Alwyn.Hoffman@nwu.ac.za).

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Cite: Gabriel Visagie and Alwyn Hoffman, "Comparison of Statistical Arbitrage in Developed and Emerging Markets," International Journal of Trade, Economics and Finance vol.8, no.2, pp. 67-72, 2017.

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