Pairs trading is a popular quantitative speculation strategy. This article proposes a general and flexible framework for pairs selection. The method uses multiple return forecasts based on bivariate information sets and multi-criteria decision techniques. Our approach can be seen as a sort of forecast combination but the output of the method is a ranking. It helps to detect potentially under- and overvalued stocks. A first application with S&P 100 index stocks provides promising results in terms of excess return and directional forecasting. © 2008 Elsevier B.V. All rights reserved.
CITATION STYLE
Huck, N. (2009). Pairs selection and outranking: An application to the S&P 100 index. European Journal of Operational Research, 196(2), 819–825. https://doi.org/10.1016/j.ejor.2008.03.025
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