Large-scale empirical study on pairs trading for all possible pairs of stocks listed on the first section of the Tokyo Stock Exchange

摘要

We carry out a large-scale empirical data analysis to examine the efficiencyof the so-called pairs trading. On the basis of relevant three thresholds,namely, starting, profit-taking, and stop-loss for the `first-passage process'of the spread (gap) between two highly-correlated stocks, we construct aneffective strategy to make a trade via `active' stock-pairs automatically. Thealgorithm is applied to $1,784$ stocks listed on the first section of the TokyoStock Exchange leading up to totally $1,590,436$ pairs. We are numericallyconfirmed that the asset management by means of the pairs trading workseffectively at least for the past three years (2010-2012) data sets in thesense that the profit rate becomes positive (totally positive arbitrage) inmost cases of the possible combinations of thresholds corresponding to`absorbing boundaries' in the literature of first-passage processes.