In this study, conducted by Panagiotis Schizas, Dimitrios D. Thomakos, and Tao Wang, the focus is on examining the success factors behind the popular pairs trading strategy applied to international Exchange Traded Funds (ETFs). Pairs trading, a market-neutral approach widely adopted by finance practitioners, has garnered attention for its multiple implementations of solid underlying ideas.
The research employs a diverse set of international ETFs, a modern instrument of choice in professional circles, to analyze the strategy’s performance and identify potential sources of profitability.
The study’s findings confirm the profitability of pairs trading in the realm of international ETFs, challenging common perceptions about the profitability of long trades.
A notable distinction is observed between the long and short components of the pairs. Delving into the sources of the strategy’s profitability, the researchers identify key fundamentals, including earnings per share, dividend yield, and the unemployment rate.
This research provides valuable insights into the success and dynamics of pairs trading on international ETFs, offering a concise yet comprehensive understanding of the strategy’s profitability and its underlying factors.
Abstract Of Paper
Pairs trading is a popular, market-neutral trading strategy among finance practitioners that has been recently evaluated in a number of papers. Since it is a successful trading strategy, allowing for multiple implementations of solid underlying ideas, it is interesting to further explore the underlying factors for its success. In this paper we do so using a large family of international exchange traded funds (ETFs), a recent instrument of choice among professionals. Using ETFs from across the world we examine the performance of the pairs trading strategy and the various potential sources of its profitability. Our results show that pair trading is a profitable strategy in the context of international ETFs. There is a clear difference between the long and short component of the pairs, maybe in contrast to the common perception on the profitability of long trades. Finally, we explore the sources of the strategy’s total profitability and find that it can be explained by a number of fundamentals, the most important being the earnings per share, the dividend yield and the unemployment rate.
Original paper – Download PDF
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Author
Panagiotis Schizas
University of Zurich – Department of Banking and Finance
Dimitrios D. Thomakos
University of Athens, Department of Business Administration
Tao Wang
City University of New York (CUNY) – Department of Economics
Conclusion
In this comprehensive study led by Panagiotis Schizas, Dimitrios D. Thomakos, and Tao Wang, the focus centers on the exploration of pairs trading on international exchange-traded funds (ETFs), a strategy well-regarded among finance practitioners.
While pairs trading has been extensively evaluated, its success and the underlying factors contributing to its profitability remain of significant interest. The study employs a diverse range of international ETFs, a popular instrument among professionals, to assess the performance of pairs trading and delve into the sources of its profitability.
The findings underscore the profitability of pairs trading within the context of international ETFs, revealing a distinct disparity between the long and short components of the pairs. This observation challenges common perceptions regarding the profitability of long trades within pairs trading strategies.
Notably, the study goes further to explore the sources contributing to the strategy’s overall profitability. The results indicate that fundamental factors, including earnings per share, dividend yield, and the unemployment rate, play crucial roles in explaining the total profitability of the pairs trading strategy.
In summary, this research provides valuable insights into the dynamics of pairs trading on international ETFs, shedding light on both its profitability and the nuanced interplay of factors influencing its success.
The findings contribute to a deeper understanding of market-neutral strategies, offering practitioners a more nuanced perspective when engaging in pairs trading with international ETFs.
FAQ:
– What is the primary focus of the research paper “Pairs Trading on International ETFs” authored by Panagiotis Schizas, Dimitrios D. Thomakos, and Tao Wang?
The research paper explores the performance and profitability of pairs trading, a widely employed market-neutral trading strategy, in the context of international exchange-traded funds (ETFs). The study aims to unravel the underlying factors contributing to the strategy’s success in this global context.
– What key insights are provided regarding the profitability of pairs trading in the international ETF market, as highlighted in the research?
The study reveals that pairs trading remains a profitable strategy when applied to international ETFs. Notably, the research challenges conventional perceptions about the profitability of long trades in pairs trading and distinguishes between the long and short components of the pairs. The paper also investigates various fundamental sources of the strategy’s profitability, with a focus on factors like earnings per share, dividend yield, and the unemployment rate.
– How does the paper contribute to our understanding of pairs trading and its dynamics in the international ETF market?
The research offers a comprehensive analysis of pairs trading’s performance and profitability in the context of international ETFs, shedding light on the multifaceted elements shaping its success. By identifying key factors influencing profitability, the study provides valuable insights for finance practitioners and researchers interested in pairs trading with international assets.
