Academic Research

The Statistics of ‘Statistical Arbitrage’ in Stock Markets

Hedge funds sometimes use mathematical techniques to “capture” the short-term volatility of stocks, or perhaps other types of securities. This type of strategy is sometimes referred to as statistical arbitrage, and we show that in the universe of large-capitalization U.S. stocks, even quite naive techniques can achieve remarkably high information ratios. Here we present a simple descriptive analysis of these strategies and their relationship with equity trading costs.