Exploring nuances in the Norwegian equity market using pairs trading

Abstract

In this thesis we explore and provide promising evidence about whether foreign investors have an oversimplified and naive view of the Norwegian equity market. Additionally, results may suggest that some financial factors, especially commodity prices, have a disproportional effect on the Norwegian equity market compared to foreign equity markets.

A new variation of a classical pairs trading framework aided by the field of machine learning is used to explore the nuances of the Norwegian equity market, and how one may be able to profit on these. Results suggest that the strategy performance is closely related to market volatility.