arbiter
JournalsPricingAccount

State‐Dependent Hedging in Pairs Trading During Volatile Periods

Hyeonjun Kim et al.

European Financial Management2026https://doi.org/10.1111/eufm.70050article
AJG 3ABDC A
Weight
0.50

What the paper says

We introduce a state‐dependent hedging framework for pairs trading that captures the nonlinear return dependence between stocks and their benchmarks. We reinterpret static pairs trading as a strategy with a state‐dependent hedge ratio that varies with return volatility. This design enables investors to over‐hedge against large return shocks. The augmented strategy shows comparable investment performance but lower downside risk, with pronounced outperformance in recent and highly volatile periods. The strategy's effectiveness appears to stem from managing cash‐flow risks tied to turbulent relative price spreads and maintaining exposure to industry momentum.

Open paper page →

Cite this paper

https://doi.org/https://doi.org/10.1111/eufm.70050

Or copy a formatted citation

@article{hyeonjun2026,
  title        = {{State‐Dependent Hedging in Pairs Trading During Volatile Periods}},
  author       = {Hyeonjun Kim et al.},
  journal      = {European Financial Management},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1111/eufm.70050},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

State‐Dependent Hedging in Pairs Trading During Volatile Periods

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.