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.
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 *