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Behavioral Statisitical Arbitrage on Chinese Stock Market

Author: ChenZhiYuan
Tutor: LuBin
School: Nanjing University of Finance and Economics
Course: Finance
Keywords: Behavioral finance Statistical arbitrage Portfolio
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 104
Quote: 1
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China’s stock market as the development of emerging stock markets of its short history, the market system is not yet perfect, irrational trading behavior than the western developed countries the stock market seriously, and this has also led to inefficiencies in the Chinese stock market. Momentum is a performance of financial markets ineffectiveness form,this ineffectiveness can be exploited by trading strategies. Chinese scholars exploited Chinese stock market momentum effect mostly use the traditional price momentum strategy (combination of structural winner loser) or matching, cointegration methods. Either one of two methods which use behavioral finance theory, or a single use of traditional financial theory to study the Chinese stock market. In this paper, the behavior of financial and statistical arbitrage approach both from the perspective of behavioral finance analysis of Chinese stock market, but also more popular with foreign arbitrage methods of statistical analysis and empirical research. This combination of both methods and theory allows us to exclude market access and human factors, risk or return objectives set portfolio.The main purpose of this paper is that the constraints in certain investment portfolio construction and implementation of the optimal behavior of statistical arbitrage strategies. This approach by the Chinese stock market momentum effect study, and verify whether this strategy can bring excess profits. In order to achieve research objectives, we use the cumulative stock returns to construct the winner portfolio and loser portfolio, and combinatorial optimization using three methods: minimum variance portfolio; combination of long position and short position covariance minimization; combination of beta coefficient zero variance and covariance under the minimum. This article in the Shanghai and Shenzhen stock market, respectively, the formation of two tests: six months and twelve months and four holding periods: half month, one month, three months, six months.The empirical analysis found that the two are used to form the next half of the holding period strategy can bring a positive rate of return higher than the market, while in other strategy is the holding period returns are negative. From the results of the empirical price fluctuations in the Chinese stock market more frequently, the market is not mature, in the short term memory in more arbitrage opportunities.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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