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Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency

Author

Listed:
  • Karen Balladares

    (Facultad de Ciencias Administrativas, Universidad de Guayaquil, 090514 Guayaquil, Ecuador)

  • José Pedro Ramos-Requena

    (Departamento de Economía y Empresa, Universidad de Almería, Carretera Sacramento s/n, La Cañada de San Urbano, 04120 Almería, Spain)

  • Juan Evangelista Trinidad-Segovia

    (Departamento de Economía y Empresa, Universidad de Almería, Carretera Sacramento s/n, La Cañada de San Urbano, 04120 Almería, Spain)

  • Miguel Angel Sánchez-Granero

    (Departamento de Matemáticas, Universidad de Almería, Carretera Sacramento s/n, La Cañada de San Urbano, 04120 Almería, Spain)

Abstract

In this paper, we use a statistical arbitrage method in different developed and emerging countries to show that the profitability of the strategy is based on the degree of market efficiency. We will show that our strategy is more profitable in emerging ones and in periods with greater uncertainty. Our method consists of a Pairs Trading strategy based on the concept of mean reversion by selecting pair series that have the lower Hurst exponent. We also show that the pair selection with the lowest Hurst exponent has sense, and the lower the Hurst exponent of the pair series, the better the profitability that is obtained. The sample is composed by the 50 largest capitalized companies of 39 countries, and the performance of the strategy is analyzed during the period from 1 January 2000 to 10 April 2020. For a deeper analysis, this period is divided into three different subperiods and different portfolios are also considered.

Suggested Citation

  • Karen Balladares & José Pedro Ramos-Requena & Juan Evangelista Trinidad-Segovia & Miguel Angel Sánchez-Granero, 2021. "Statistical Arbitrage in Emerging Markets: A Global Test of Efficiency," Mathematics, MDPI, vol. 9(2), pages 1-20, January.
    • Handle: RePEc:gam:jmathe:v:9:y:2021:i:2:p:179-:d:482011
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    References listed on IDEAS

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