Pairs Trading And Strategies And The CAPM - Dissertation Example

Only on StudentShare

Extract of sample
Pairs Trading And Strategies And The CAPM

Besides testing a model, this study will also be testing market efficiency and using use Cointegration as a decision rule for pair selection, try to ascertain whether different and more efficient rules may be implemented. In order to calculate asset returns we need the Capital Asset Pricing Model (CAPM) which gives predictions on how to measure risk and the relationship between risk and return. The relationship of expected return is linear and is necessary to explain differences in returns among securities. Introduction Pairs trading include tested methods used to identify and invest in pairs. This was developed by Morgan Stanley in the 1980’s and is today one of the most commonly used strategies in the finance and trading industry. Using this strategy, an investor looks at two assets, whose prices have moved together in the past. As the price spread widens, the investor takes a short position in the outperforming asset and a long position in the underperforming asset hoping that the spread will move back again, thereby generating profits. If history then repeats itself, prices will congregate and the arbitrageur will earn revenue. For example, if the U.S. ...Show more

Summary

PAIRS TRADING AND STRATEGIES AND THE CAPM Name Banking and finance 23 June 2012 Abstract Pairs trading is a trading strategy used to exploit markets that are out of equilibrium, assuming that overtime they will move to rational equilibrium…
Author : adrienne61
Save Your Time for More Important Things
Let us write or edit the dissertation on your topic
"Pairs Trading And Strategies And The CAPM"
with a personal 20% discount.
Grab the best paper

Related Essays

Trading Simulation Assignment
The purpose of this paper is to evaluate and present analysis of portfolio value and risk of the portfolio; analysis of the various strategies; overall profitability. Continuous monitoring of the stocks market is also necessary so as to effective manages one portfolio. Continuous monitoring helps also in benchmarking as preventing inventors in running to huge amount of losses.
19 pages (4750 words) Essay
Share Trading Assignment
There is no doubt that trading in shares of 888 Holdings and Vodafone public companies will yield a percentage profit that beats the FTSE All-share index. Other than conducting an analysis on the trading, this paper provides a critical diary on the trading as well as the significance of the concepts learnt in this course.
8 pages (2000 words) Essay
Investing in Portfolios and CAPM
Investing in portfolios has two advantages. First of all, it reduces the investor’s risk and secondly it improves the returns that the investor can earn. Therefore, many large investors and investment banks invest in portfolios or in a basket of investment rather than investing in one type of security or company.
8 pages (2000 words) Essay
CAPM (Capital Asset Pricing Model)
Capital Asset Pricing Model. CAPM (Capital Asset Pricing Model) The CAPM model has emerged to be one of the most important tools in making a fundamental decision related to the investment management. It measures the relationship between the expected rate of return and the risk involved in a particular investment The CAPM tool signifies the linear relationship between the non diversified systematic risks which is measured by beta ?
7 pages (1750 words) Essay
Trading Simulation Report
The report contains information about an investment portfolio along with its recent performance. Both optimized and un optimised portfolios have been analysed and returns worked out accordingly. (B) Main body Portfolio Management Building a portfolio is a core aspect of an investment plan.
10 pages (2500 words) Essay
Resort Maps : Business Venture Case Study
One of the key issues involved in business planning is the creation of a sound business plan. A sound business plan is a detailed outline of the business indicating the current state of the business as well as the desired future. The plan gives details of marketing activities and strategies involved financial analysis as well as a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of the business.
3 pages (750 words) Case Study
Evaluation of CAPM using American stock market data
The CAPM was built on the model of choice of portfolio developed by Harry Markowitz (1959). According to the model of Markowitz, an investor opts to select a portfolio at time t-1 which would generate a stochastic return at time t. The model assumes that investors are generally risk averse, and at the time of choosing their portfolio they are concerned only about the mean and variance of their return at the end of the period of investment.
12 pages (3000 words) Dissertation
Business Plan (3Gen Informatics)
Business Plan (3Gen Informatics). This paper intends to produce a realistic and a practical business plan for the proposed business venture dealing with computer sales and service. In this regard, various aspects such as forecasted cash flows and net present value (NPV) among others have been taken into concern in the proposed plan.
11 pages (2750 words) Essay
CAPM
Thus, CAPM predicts that the risk that faces businesses is the market or systematic hazard, which is unavoidable. The market risk in unavoidable because it affects all businesses simultaneously, meaning that companies cannot diversify their products and services to avoid the hazard.
4 pages (1000 words) Assignment
Find out how much would it cost
to get a custom paper written by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT