Stock market spread trading: Argentina and Brazil stock indexes

Jonathan A. Batten; Peter G. Szilagyi; Michael C.S. Wong

doi:10.2753/REE1540-496X5003S304

Stock market spread trading: Argentina and Brazil stock indexes

Jonathan A. Batten, Peter G. Szilagyi, Michael C.S. Wong

Department of Economics and Finance

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

4 Citations (Scopus)

Abstract

Brazil has the largest stock market in South America; Argentina has one of the smallest. We investigate the spread relationship between these two markets, measured as the ratio of Brazil's Bovespa index to Argentina's Merval index. Using rescaled range analysis, we identify the presence of a time-varying fractal structure in this ratio. When a Hurst-based trading rule is applied, we find that episodes of fractality may be exploited by traders. Under some circumstances, these strategies are more profitable than economic gains from simple moving average systems, which exploit the autocorrelation structure of the series.

Original language	English
Pages (from-to)	61-76
Journal	Emerging Markets Finance and Trade
Volume	50
Issue number	Supplement 3
DOIs	https://doi.org/10.2753/REE1540-496X5003S304
Publication status	Published - May 2014

Research Keywords

Argentina Merval
Brazil Bovespa
Fractal structure
Hurst coefficient
Longterm dependence
Spread trading
Volatility.

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title = "Stock market spread trading: Argentina and Brazil stock indexes",

abstract = "Brazil has the largest stock market in South America; Argentina has one of the smallest. We investigate the spread relationship between these two markets, measured as the ratio of Brazil's Bovespa index to Argentina's Merval index. Using rescaled range analysis, we identify the presence of a time-varying fractal structure in this ratio. When a Hurst-based trading rule is applied, we find that episodes of fractality may be exploited by traders. Under some circumstances, these strategies are more profitable than economic gains from simple moving average systems, which exploit the autocorrelation structure of the series.",

keywords = "Argentina Merval, Brazil Bovespa, Fractal structure, Hurst coefficient, Longterm dependence, Spread trading, Volatility.",

author = "Batten, {Jonathan A.} and Szilagyi, {Peter G.} and Wong, {Michael C.S.}",

year = "2014",

month = may,

doi = "10.2753/REE1540-496X5003S304",

language = "English",

volume = "50",

pages = "61--76",

journal = "Emerging Markets Finance and Trade",

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TY - JOUR

T1 - Stock market spread trading

T2 - Argentina and Brazil stock indexes

AU - Batten, Jonathan A.

AU - Szilagyi, Peter G.

AU - Wong, Michael C.S.

PY - 2014/5

Y1 - 2014/5

N2 - Brazil has the largest stock market in South America; Argentina has one of the smallest. We investigate the spread relationship between these two markets, measured as the ratio of Brazil's Bovespa index to Argentina's Merval index. Using rescaled range analysis, we identify the presence of a time-varying fractal structure in this ratio. When a Hurst-based trading rule is applied, we find that episodes of fractality may be exploited by traders. Under some circumstances, these strategies are more profitable than economic gains from simple moving average systems, which exploit the autocorrelation structure of the series.

AB - Brazil has the largest stock market in South America; Argentina has one of the smallest. We investigate the spread relationship between these two markets, measured as the ratio of Brazil's Bovespa index to Argentina's Merval index. Using rescaled range analysis, we identify the presence of a time-varying fractal structure in this ratio. When a Hurst-based trading rule is applied, we find that episodes of fractality may be exploited by traders. Under some circumstances, these strategies are more profitable than economic gains from simple moving average systems, which exploit the autocorrelation structure of the series.

KW - Argentina Merval

KW - Brazil Bovespa

KW - Fractal structure

KW - Hurst coefficient

KW - Longterm dependence

KW - Spread trading

KW - Volatility.

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UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-84908251276&origin=recordpage

U2 - 10.2753/REE1540-496X5003S304

DO - 10.2753/REE1540-496X5003S304

M3 - RGC 21 - Publication in refereed journal

SN - 1540-496X

VL - 50

SP - 61

EP - 76

JO - Emerging Markets Finance and Trade

JF - Emerging Markets Finance and Trade

IS - Supplement 3

ER -

Stock market spread trading: Argentina and Brazil stock indexes

Abstract

Research Keywords

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