What Is Statistical Arbitrage?

Abstract

Statistical Arbitrage (SA) is a common financial term. However, there is no common definition in the literature while investors use the expression SA for a variety of different strategies. So, what is SA? In order to answer this question, we investigate SA strategies across equity, fixed income and commodity. The analysis of strategies’ key features indicates that no existing definition fully describes them. To bridge this gap, we identify a general definition and propose a classification system that encompasses the current forms of SA strategies while facilitating the inclusion of new types as they emerge.