{"title":"Statistical Arbitrage and Robust Tests for Cointegration","authors":"Thomas A. Hanson, Joshua Hall","doi":"10.2139/ssrn.2154735","DOIUrl":"https://doi.org/10.2139/ssrn.2154735","url":null,"abstract":"One application of cointegration tests is screening candidate stocks for the investment strategy known as statistical arbitrage. This paper develops two robust tests for cointegration by using rank-based and least absolute deviation regression to modify the seminal Engle-Granger test. Critical values are generated and power calculated for various error distributions. Finally, the tests are utilized in a simple pairs trading strategy and backtested on daily data from 2001 to 2010. The rank-based cointegration test has superior qualities in that context, suggesting one application of this new statistical test.","PeriodicalId":370098,"journal":{"name":"Asset Pricing Research","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125679151","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}