Title: Pairs trading: is it profitable in Amman Stock Exchange?

Authors: Dima Waleed Hanna Alrabadi

Addresses: Department of Finance and Banking Sciences, Faculty of Economics and Administrative Sciences, Yarmouk University, Jordan

Abstract: This study investigates the profitability of pairs trading strategy in Amman Stock Exchange (ASE) using daily data over the period (2009-2013). Specifically, five pairs of stocks are selected based on three criteria; simple correlation analysis, the closeness measure of Gatev et al. (2006) and cointegration analysis. The results indicate that the pairs trading strategy achieves an annual rate of return of 22.5%, which is fully explained by both the capital asset pricing model and the Fama and French (1993) three-factor model. These findings are vital to investors, speculators and academicians.

Keywords: Amman Stock Exchange; ASE; arbitrage; closeness; cointegration analysis; investment strategy; pairs trading.

DOI: 10.1504/AAJFA.2017.085544

Afro-Asian Journal of Finance and Accounting, 2017 Vol.7 No.3, pp.242 - 254

Received: 18 May 2016
Accepted: 17 Oct 2016

Published online: 12 Jul 2017 *

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