Testing a new Contrarian Strategy between Hong Kong and the Australian Resources Sector: A Research Note

Santosh Mon Abraham

Abstract


During the financial crisis investment strategies following long only asset allocation methodologies floundered in the wake of a 57% peak-to-trough decline of the S&P 500. This paper demonstrates a new strategy that produces strong returns in both up and down markets. A new contrarian/pairs-trading approach using the Johansen (1988) cointegration method was developed and implemented from January 2003 to March 2013 using constituent stocks from the Hang Seng Index and Metals and Mining Index. The strategy produced a return of over 607% for the period (or an annual return of more than 21%). This supports previous research demonstrating the profitability of international arbitrage strategies (for example Abraham, 2013a; and Abraham, 2013b). 


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DOI: http://dx.doi.org/10.5296/jmr.v6i1.4854

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