Pairs trading hypotheses test

Reference no: EM13109157

Say you think your positive pairs trade returns are due to pairs trades you made on small stocks (measured by market capitalization).

Describe how would you test this hypothesis?

What regression equations would you use, and what would your null and alternative hypotheses be on the coefficients?

If your positive pair trade returns are indeed from trades on small stocks, would you expect to accept or reject the null hypotheses for your coefficients?

Reference no: EM13109157

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