AbstractsSocial Sciences
On Statistical Arbitrage: Cointegration and Vector Error-Correction in the Energy Sector
| Institution: | Uppsala University |
|---|---|
| Department: | |
| Year: | 2014 |
| Keywords: | Mean-reversion; VAR; VECM; Impulse Response; Cointegration; Social Sciences; Samhällsvetenskap |
| Record ID: | 1349474 |
| Full text PDF: | http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-226012 |
Abstract
This paper provides methods to select pairs potentially profitable within the frame of statistical arbitrage. We employ a cointegration approach on pairwise combinations of five large energy companies listed on the New York Stock Exchange for the period 27<sup>th</sup> September 2012 to 22<sup>nd</sup> April 2014. We find one cointegrated pair, for which we further investigate both short and long run dynamics. A vector-error correction model is constructed, supporting a long run relationship between the two stocks, which is also supported by the mean-reverting characteristic of a stationary linear combination of the stocks. Impulse response functions and variance decomposition are also studied to further describe the interrelation of the stocks, supporting a unidirectional causality between the stocks.
