%0 Journal Article
%T U.S. Equity Mean-Reversion Examined
%A Jim Liew
%A Ryan Roberts
%J Risks
%D 2013
%I MDPI AG
%R 10.3390/risks1030162
%X In this paper we introduce an intra-sector dynamic trading strategy that captures mean-reversion opportunities across liquid U.S. stocks. Our strategy combines the Avellaneda and Lee methodology (AL; Quant. Financ. 2010, 10, 761每782) within the Black and Litterman framework (BL; J. Fixed Income, 1991, 1, 7每18; Financ. Anal. J. 1992, 48, 28每43). In particular, we incorporate the s-scores and the conditional mean returns from the Orstein and Ulhembeck ( Phys. Rev. 1930, 36, 823每841) process into BL. We find that our combined strategy ALBL has generated a 45% increase in Sharpe Ratio when compared to the uncombined AL strategy over the period from January 2, 2001 to May 27, 2010. These new indices, built to capture dynamic trading strategies, will definitely be an interesting addition to the growing hedge fund index offerings. This paper introduces our first ※focused-core§ strategy, namely, U.S. Equity Mean-Reversion.
%K Black每Litterman
%K US stocks
%K dynamic trading strategy
%K mean-reversion
%K quantitative finance
%K statistical arbitrage
%U http://www.mdpi.com/2227-9091/1/3/162