Modeling aerospace industrial corporate performance : case of cointegration analysis 2001-2008
Lee, Chen Hoay.
Date of Issue2009
School of Mechanical and Aerospace Engineering
Pairs trading is a self-financing investment strategy, which has at least 20 years of history on Wall Street. Over the years, pairs trading has become a branch of "market-neutral" investment strategy which has been the subject of broad exploration by institutional money managers as well as hedge fund experts. Though it has endured for many years as a successful approach, the details of the approach remain proprietary and have not been widely publicized. In a bullish market, performance of market-neutral strategies tends to be overshadowed by directional-based strategies. The current financial climate, which necessitated an unprecedented coordinated tax cuts by major central banks, is widely touted as the worst recession, second only to Great Depression. Could this extreme volatile market herald the resurgence of market-neutral strategies such as pairs trading? Since the publication of the seminal paper on cointegration in the late 80’s, cointegration has become widely applied in the realms of finance and econometrics. Over the next two decades, cointegration has become an effective tool in uncovering trends in multivariate time series and modeling of long-term and short-term dynamics in a system. Cointegration analysis has been performed to identify pairs in aerospace industry that tend to mean-revert based on statistical relationship. The results have been very encouraging and warrant further research to fine-tune this methodology.
Final Year Project (FYP)
Nanyang Technological University