PAIR TRADING STRATEGY IN INDIAN CAPITAL MARKET: STATEMENT OF PROBLEM

PROBLEM

Hedging techniques are used by corporate and financial intermediaries to avoid the unforeseen loss and to reduce the risk in existing exposure. On the other hand the arbitrage is the tool for opportunity scouting in the capital and derivative market. Pair trading is such a kind of investment strategy which offers both hedging and arbitrage opportunity. In Indian capital market pair trading is a very little known concept and it requires extensive research to bring out the crux and the advantages of pair trading strategies. Applicability of the pair trading strategy as an effective hedging and arbitrage tool is not yet fully known. But the investment strategy has a lot of potential. To address this existing gap this study has been undertaken.

OBJECTIVES OF RESEARCH

The present study has been undertaken with the following objectives:

• To find out the effectiveness of the Pair trading strategy.
• To find out the natural pairs (Univariate) for each stocks.
• To build artificial pairs (bivariate and trivariate) for each stock.
• To compare the pair trading strategy return with Naive return (Simulated return).

Representative APR 391%

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