Profitability of Pair Trading: A Case of Islamic Indices in Pakistan

Sukkur IBA journal of management and business Pub Date : 2024-02-28 DOI:10.30537/sijmb.v10i2.1057

Muhammad Khalid Sohail, Tanveer Illahi, Rehana Farhat, Sidra Gazali, Maheen Kiran, Shahab Aziz

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Abstract

The pair trading strategy under portfolio construction is one of the profitable strategies. This is first ever study to observe the pair trading strategy using Islamic Index KSE firms. Distance approach is applied in this study by taking firms under KMI-30 Islamic index by using daily data from year January 1, 2012 to year December 31, 2019. These firms are divided into three subcategories, high-cap, mid-cap and low-cap. After formation of pairs, trading algorithm under various parameterizations is used to observe the profitability. The study concluded with positive and significant returns of top 3, 5, 7 and 10 pairs for each category. In addition, this study also witnessed with positive returns after risk adjustment of market factor for the top 3, 5, 7, and 10 pairs of Islamic index’s firms. These results are accordance with theories of mean revision and market neutrality. The study is contributing to the literature regarding the profitability of pair trading in Islamic Indices firms in Pakistan. Policy Implication for Islamic fund managers and investors is recommended.

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配对交易的盈利能力：巴基斯坦伊斯兰指数案例

投资组合构建下的配对交易策略是盈利策略之一。这是首次使用 KSE 伊斯兰指数公司观察配对交易策略的研究。本研究采用了距离法，利用从 2012 年 1 月 1 日到 2019 年 12 月 31 日的每日数据，选取了 KMI-30 伊斯兰指数下的公司。这些公司被分为高市值、中市值和低市值三个子类别。在形成交易对后，使用各种参数化的交易算法来观察盈利能力。研究得出的结论是，每个类别的前 3、5、7 和 10 个交易对都获得了积极而显著的回报。此外，本研究还发现，在对市场因素进行风险调整后，伊斯兰指数前 3、5、7 和 10 对公司的收益率均为正数。这些结果符合均值修正和市场中性理论。这项研究为有关巴基斯坦伊斯兰指数公司配对交易盈利能力的文献做出了贡献。对伊斯兰基金经理和投资者的政策影响提出了建议。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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Sukkur IBA journal of management and business

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