Skip to main content

Main menu

  • Home
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About the JOT
    • Editorial Board
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow PMR on LinkedIn
  • Follow PMR on Twitter

User menu

  • Sample our Content
  • Subscribe Now
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Trading
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Subscribe Now
  • Log in
The Journal of Trading

The Journal of Trading

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About the JOT
    • Editorial Board
  • Follow PMR on LinkedIn
  • Follow PMR on Twitter
Article

Illuminating the Profitability of Pairs Trading: A Test of
the Relative Pricing Efficiency of Markets for Water
Utility Stocks

Jose A. Gutierrez and Yiuman Tse
The Journal of Trading Spring 2011, 6 (2) 50-64; DOI: https://doi.org/10.3905/jot.2011.6.2.050
Jose A. Gutierrez
is an assistant professor of finance at Sam Houston State University in Huntsville, TX.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: jag063@shsu.edu
Yiuman Tse
is the U.S. Global Investors, Inc. Fellow at the University of Texas in San Antonio, TX.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: yiuman.tse@utsa.edu
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.
Don’t have access? Sign up today to begin your trial to the PMR platform 

Abstract

This article examines the profitability of a pairs trading strategy derived solely from historic price dynamics and contrarian principles. The authors find that the profitability of the self-financing strategy hinges on a cointegrated relationship, which previous research shows also implies an error-correcting relationship. With an error-correcting relationship at play, their model allows the movement of a temporary pricing flaw back to its expected value to be predicted with a surprisingly high level of accuracy. They find that although they are not able to foresee the movement of the cointegrating leader, that move generates a predictable response from the cointegrating follower, which the pairs trading strategy is able to profit from. Their results are robust to a variety of scenarios; most interestingly is when the same security is the leader in one combination but the follower in another. In this case, the security in question is predictable only when it is the follower.

  • © 2011 Pageant Media Ltd
View Full Text

Don’t have access? Register today to begin unrestricted access to our database of research.

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Trading: 6 (2)
The Journal of Trading
Vol. 6, Issue 2
Spring 2011
  • Table of Contents
  • Index by author
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Trading.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Illuminating the Profitability of Pairs Trading: A Test of the Relative Pricing Efficiency of Markets for Water Utility Stocks
(Your Name) has sent you a message from The Journal of Trading
(Your Name) thought you would like to see the The Journal of Trading web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Illuminating the Profitability of Pairs Trading: A Test of
the Relative Pricing Efficiency of Markets for Water
Utility Stocks
Jose A. Gutierrez, Yiuman Tse
The Journal of Trading Mar 2011, 6 (2) 50-64; DOI: 10.3905/jot.2011.6.2.050

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Illuminating the Profitability of Pairs Trading: A Test of
the Relative Pricing Efficiency of Markets for Water
Utility Stocks
Jose A. Gutierrez, Yiuman Tse
The Journal of Trading Mar 2011, 6 (2) 50-64; DOI: 10.3905/jot.2011.6.2.050
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • STATIONARITY, CO-INTEGRATION, AND ERROR CORRECTION
    • PAIRS TRADING AND RELATIVE VALUE ARBITRAGE
    • DATA AND SUMMARY STATISTICS
    • TRADING RULE
    • CONCLUDING REMARKS
    • APPENDIX
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • Marketability Filters in Spread Execution * Trading Algorithms
  • Google Scholar

More in this TOC Section

  • COMMENTARY: Space Unicorns and the Intermarket Trading System: Revisiting Myths
  • COMMENTARY: Commentary on “If Best Execution Is a Process, What Does That Process Look Like?”1
  • COMMENTARY: Beyond the Black Box Revisited: Algorithmic Trading and TCA Analysis Using Excel
Show more Article
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow PMR on LinkedIn
  • Follow PMR on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 1559-3967 | E-ISSN: 2168-8427

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies