Does Pairs trading work on the Johannesburg Stock Exchange?

In this study it was examined whether Pairs trading is a potentially profitable trading strategy on the Johannesburg Stock Exchange. Pairs trading is a quantitative based trading strategy, in which shares are paired up based on a historic price relationship and traded accordingly, in a contrarian manner, when they diverge from said historical relationship. The essence of Pairs trading is to take advantage of perceived market inefficiencies, which is a direct contradiction of the Efficient Markets Hypothesis (even in its weak form). This study tested Pairs trading on both an unrestricted (any two shares can be paired), as well as a sector-restricted (only pairs within the RESI and the FINDI sectors could be paired), sample of shares (the JSE Top80 - based on market capitalization). Furthermore, a number of different signals (which are based on standard deviations) to open and close pairs were tested, on both the unrestricted and sector-restricted samples. The aim of using different samples of shares, as well as different trading signals, was to determine whether or not different strategies could serve to bolster the performance of a Pairs trading strategy.

Grantor dc:publisher.institution

GSB: Faculty

Year dc:date.issued

2015

Author dc:creator

• Appelbaum, Matthew

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/20026

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/20026