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Statistical arbitrage in South African equity markets
The dissertation implements a model driven statistical arbitrage strategy that uses the principal components from Principal Component Analysis as factors in a multi-factor stock model, to isolate the idiosyncratic component of returns, which is then modelled as an Ornstein Uhlenbeck process. The idi...
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| Format: | Thesis |
| Language: | English |
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Division of Actuarial Science
2015
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| _version_ | 1867613154880520192 |
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| access_status_str | Open Access |
| author | Masindi, Khuthadzo |
| author2 | Lubbe, Sugnet; Kotze, Kevin |
| author_browse | Lubbe, Sugnet; Kotze, Kevin Masindi, Khuthadzo |
| author_facet | Lubbe, Sugnet; Kotze, Kevin Masindi, Khuthadzo |
| author_sort | Masindi, Khuthadzo |
| collection | Thesis |
| description | The dissertation implements a model driven statistical arbitrage strategy that uses the principal components from Principal Component Analysis as factors in a multi-factor stock model, to isolate the idiosyncratic component of returns, which is then modelled as an Ornstein Uhlenbeck process. The idiosyncratic process (referred to as the residual process) is estimated in discrete-time by an auto-regressive process with one lag (or AR(1) process). Trading signals are generated based on the level of the residual process. This strategy is then evaluated over historical data for the South African equity market from 2001 to 2013 through backtesting. In addition the strategy is evaluated over data generated from Monte Carlo simulations as well as bootstrapped historical data. The results show that the strategy was able to significantly out-perform cash for most of the periods under consideration. The performance of the strategy over data that was generated from Monte Carlo simulations demonstrated that the strategy is not suitable for markets that are asymptotically efficient. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/13427 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:31:38.662Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2015 |
| publishDateRange | 2015 |
| publishDateSort | 2015 |
| publisher | Division of Actuarial Science |
| publisherStr | Division of Actuarial Science |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/13427 Statistical arbitrage in South African equity markets Masindi, Khuthadzo Lubbe, Sugnet; Kotze, Kevin Mathematical Finance The dissertation implements a model driven statistical arbitrage strategy that uses the principal components from Principal Component Analysis as factors in a multi-factor stock model, to isolate the idiosyncratic component of returns, which is then modelled as an Ornstein Uhlenbeck process. The idiosyncratic process (referred to as the residual process) is estimated in discrete-time by an auto-regressive process with one lag (or AR(1) process). Trading signals are generated based on the level of the residual process. This strategy is then evaluated over historical data for the South African equity market from 2001 to 2013 through backtesting. In addition the strategy is evaluated over data generated from Monte Carlo simulations as well as bootstrapped historical data. The results show that the strategy was able to significantly out-perform cash for most of the periods under consideration. The performance of the strategy over data that was generated from Monte Carlo simulations demonstrated that the strategy is not suitable for markets that are asymptotically efficient. 2015-07-14T08:44:12Z 2015-07-14T08:44:12Z 2014 Master Thesis Masters MPhil http://hdl.handle.net/11427/13427 eng application/pdf Division of Actuarial Science Faculty of Commerce University of Cape Town |
| spellingShingle | Mathematical Finance Masindi, Khuthadzo Statistical arbitrage in South African equity markets |
| thesis_degree_str | Master's |
| title | Statistical arbitrage in South African equity markets |
| title_full | Statistical arbitrage in South African equity markets |
| title_fullStr | Statistical arbitrage in South African equity markets |
| title_full_unstemmed | Statistical arbitrage in South African equity markets |
| title_short | Statistical arbitrage in South African equity markets |
| title_sort | statistical arbitrage in south african equity markets |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/13427 |
| work_keys_str_mv | AT masindikhuthadzo statisticalarbitrageinsouthafricanequitymarkets |