ETF arbitrage research on China financial markets

CHEN Shi; WU Shu-jin; ZHENG Wei-an

Issue 5

Sep. 2013

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CHEN Shi, WU Shu-jin, ZHENG Wei-an. ETF arbitrage research on China financial markets[J]. Journal of East China Normal University (Natural Sciences), 2013, (5): 144-151.

Citation:

CHEN Shi, WU Shu-jin, ZHENG Wei-an. ETF arbitrage research on China financial markets[J]. Journal of East China Normal University (Natural Sciences), 2013, (5): 144-151.

CHEN Shi, WU Shu-jin, ZHENG Wei-an. ETF arbitrage research on China financial markets[J]. Journal of East China Normal University (Natural Sciences), 2013, (5): 144-151.

Citation:

CHEN Shi, WU Shu-jin, ZHENG Wei-an. ETF arbitrage research on China financial markets[J]. Journal of East China Normal University (Natural Sciences), 2013, (5): 144-151.

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ETF arbitrage research on China financial markets

1.
School of Finance and Statistics, East China Normal University, Shanghai 200241, China

Received Date: 2013-06-01
Rev Recd Date: 2013-09-01
Publish Date: 2013-09-25

Abstract

Abstract

This paper first proposed a new model to describe the relationship between two paired asset prices: $a_x(t)X_t-a_y(t)Y_t=m_t+s_t\varepsilon_t,$ where $X_t$ and $Y_t$ denote the prices of two paired financial assets at time $t$, $a_x(t)$ and $a_y(t)$ the matching coefficients, $m_t$ the long-term trend, $s_t$ the standard deviation of residual, and $\varepsilon_t$ the standardized residual. When $a_x(t)$, $a_y(t)$, $m_t$ and $s_t$ are constants, the model is reduced to a kind of two-variable cointegration model. Based on this new model, the paper proposed a statistical arbitrage method for high-frequency trading using the stationary process $\{\varepsilon_t\}$. As its application, this method was used on three major ETFs in China financial markets and achieved very stable and high revenue on all three pairs.
- high frequency trading,
- statistical arbitrage,
- stationary process

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References(1)

References

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