Pairs trading

Robert J. Elliott, John van der Hoek, William P. Malcolm · 2005 · Quantitative Finance

IntermediateIntradayLFTTheory

Models the spread as a mean-reverting process observed with noise and estimates it with a Kalman filter.

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At a glance

Level: Intermediate: Comfortable with statistics, regressions and basic probability models
Horizon: Intraday, LFT
Data needed: None to read it; no dataset required Set what data you have
Themes: Stat arb
Assets: Equities
Market: Global

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Cite

@article{elliott2005pairs,
  author = {Elliott, Robert J. and van der Hoek, John and Malcolm, William P.},
  title = {{Pairs trading}},
  journal = {Quantitative Finance},
  year = {2005},
  doi = {10.1080/14697680500149370}
}

Elliott, R. J., van der Hoek, J., & Malcolm, W. P. (2005). Pairs trading. Quantitative Finance. https://doi.org/10.1080/14697680500149370