Advanced Pairs Trading: Sparse Mean Reversion Portfolio Selection
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Assets that exhibit significant mean-reversion are difficult to find in efficient markets. As a result, investors focus on creating long-short asset baskets to form a mean-reverting portfolio whose aggregate value shows profitable mean-reversion.
This video demonstrates three different approaches to constructing mean-reverting multi-asset portfolios that require trading as few assets as possible. Such sparse portfolios have shown significant advantages in lowering transaction costs, improving P&L interpretability, and capturing meaningful statistical arbitrage opportunities.
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Presentation slides: https://drive.google.com/file/d/1y9d9...
