A master thesis from Aalborg University
Cointegrated Pairs Trading with Gold Tracking ETFs
Author(s)
Term
4. semester
Publication year
2024
Submitted on
2024-02-05
Pages
35 pages
Abstract
This thesis questions the profitability of pairs trading using two US Gold Tracking ETFs, namely the SPDR Gold Shares (GLD-US) and iShares Gold Trust (IAU-US). The data used ranges from 1st January 2015 to 25th October 2023, by implementing a cointegration approach. The empirical results suggest that the two ETFs are co-integrated and stationary during the tested periods, with the statistical properties of the ADF and the Johansen tests used to test the data. The strategy’s performance during the backtesting period is compared to that during the training period to evaluate if the strategy is profitable. The performance results in terms of returns show that the training period outperforms the backtesting period, despite the backtesting period still producing sufficient annualized returns. This leads to the efficient market hypothesis to be put into question as this should not be the case. The sensitivity analysis determined the strategy to be robust as the scenario results did not deviate so much from the backtesting period results. Despite the limitations of this study, the results conclude that pairs trading is still profitable, even though the strategy’s efficiency drops when introduced to new data.
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