Statistical Arbitrage in the U.S. Equities Market

Avellaneda, M., & Lee, J. (2010). Statistical Arbitrage in the U.S. Equities Market. Quantitative Finance, 10(7), 1-6.

Type

Journal article

Intellectual base

Primary research

Year

2010

Volume

10

Issue

7

Pages

1-6

DOI

10.1080/14697680903124632

DOI registrant

Taylor & Francis

Link

https://doi.org/10.1080/14697680903124632

Cited from

economics_finance

Cited by

2 citations across 2 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Arbitrage (Finance)
  • If tech stocks and semiconductor suppliers historically move together (correlation 0.85), but recent market stress caused semiconductors to decline 15% while tech remained flat, a stat-arb trader shorts tech and longs semiconductors, betting the gap closes—a strategy Avellaneda and Lee (2010) operationalize through PCA-based residual factor decomposition on U.S. equities and demonstrate to deliver positive but declining Sharpe ratios as competition intensifies.

    This sourceOperationalizes statistical arbitrage via PCA and ETF-based residual factor decomposition on U.S. equities (idiosyncratic returns modeled as mean-reverting); documents positive but secularly declining Sharpe ratios (PCA strategy Sharpe ~1.44 over 1997–2007, falling to ~0.9 in 2003–2007) as the strategy is increasingly crowded.

Domain-specific

• Statistical relative-value trading
  • The expected payoff depends on what prices do after entry and can be negative when the model, market conditions, or execution fail.

Verification

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Links previously used in the corpus

Before the registry existed this work was also linked 1 other way.

• https://math.nyu.edu/~avellane/AvellanedaLeeStatArb071108.pdf ×1

Registry ID ref:7ff3c1bf5f47 · see in the full table