STATISTICAL ARBITRAGE STRATEGIES ON GREEK BANKS’ EQUITY SHARES

Compared with previous research, the present work extends existing literature by considering pair-wise long-run relations between banks’ shares trading in the Greek stock market, under different market conditions, and the implications of these relations on the implementation of pairs trading strategies. The examined data contain one bust phase followed by a mild bullish period. Employing cointegration analysis, reported results initially indicate that changes in market performance affect stability of long-run relations, therefore suggesting that arbitrageurs should perform rebalancing between the examined stocks, in each pair, when a change in market trend is evident. Furthermore, extreme market performance harms the mean-reverting properties of the long-run relations while moderate market performance points to one cointegrating vector which retains the characteristics implied in full-sample analysis. The applicability of our results may be of importance to market participants since the cointegration approach has recently received considerable attention from hedge funds adopting pairs trading strategies.