Pairs trading in the UK equity market: risk and return

In this paper, we provide the first comprehensive UK evidence on the profitability of the pairs trading strategy. Evidence suggests that the strategy performs well in crisis periods, so we control for both risk and liquidity to assess performance. To evaluate the effect of market frictions on the strategy, we use several estimates of transaction costs. We also present evidence on the performance of the strategy in different economic and market states. Our results show that pairs trading portfolios typically have little exposure to known equity risk factors such as market, size, value, momentum and reversal. However, a model controlling for risk and liquidity explains a far larger proportion of returns. Incorporating different assumptions about bid-ask spreads leads to reductions in performance estimates. When we allow for time-varying risk exposures, conditioned on the contemporaneous equity market return, risk-adjusted returns are generally not significantly different from zero.

A service-oriented user interaction analysis framework supporting adaptive applications

A comprehensive user model, built by monitoring a user's current use of applications, can be an excellent starting point for building adaptive user-centred applications. The BaranC framework monitors all user interaction with a digital device (e.g. smartphone), and also collects all available context data (such as from sensors in the digital device itself, in a smart watch, or in smart appliances) in order to build a full model of user application behaviour. The model built from the collected data, called the UDI (User Digital Imprint), is further augmented by analysis services, for example, a service to produce activity profiles from smartphone sensor data. The enhanced UDI model can then be the basis for building an appropriate adaptive application that is user-centred as it is based on an individual user model. As BaranC supports continuous user monitoring, an application can be dynamically adaptive in real-time to the current context (e.g. time, location or activity). Furthermore, since BaranC is continuously augmenting the user model with more monitored data, over time the user model changes, and the adaptive application can adapt gradually over time to changing user behaviour patterns. BaranC has been implemented as a service-oriented framework where the collection of data for the UDI and all sharing of the UDI data are kept strictly under the user's control. In addition, being service-oriented allows (with the user's permission) its monitoring and analysis services to be easily used by 3rd parties in order to provide 3rd party adaptive assistant services. An example 3rd party service demonstrator, built on top of BaranC, proactively assists a user by dynamic predication, based on the current context, what apps and contacts the user is likely to need. BaranC introduces an innovative user-controlled unified service model of monitoring and use of personal digital activity data in order to provide adaptive user-centred applications. This aims to improve on the current situation where the diversity of adaptive applications results in a proliferation of applications monitoring and using personal data, resulting in a lack of clarity, a dispersal of data, and a diminution of user control.