Author(s)

Y. Kawasaki, H. Udaka & T. Hirano

Abstract

We propose a framework of a long–short trading system based on cointegration analysis, and define two trading strategies, a contrarian type and a momentum type strategy. We consider some restrictions on investment choices by sector and by firm size. The aim of this article is to investigate how such restrictions affect the risk–return properties of the hypothetical long–short funds. Keywords: long–short strategy, unit root test, cointegration, contrarian, momentum. 1 Introduction Forecasting stock price in level is extremely difficult task because such a series is often described as an integrated process. Nevertheless, a linear combination of two stock prices can be stationary around a fixedmean. Then taking both long and short positions can lead to profit. This article relies on the long

Keywords