Cointegration and pairs selection

I fear that a noble price doesn't help solving the task of making money in the markets (LTCM) :)

The smarter you are - the longer it takes to make money.

Good trading
 
A problem with cointegration is that the error term is assumed to be N(0,1) ... if I am not mistaken. If this is true, then cointegration pairing is worthless. Say that on T=100, that the residual is 2 standard deviation away. For T=101, there is NO mean reversion.



Again, I might be wrong .. dead wrong.
 
Quote from olintner:

I fear that a noble price doesn't help solving the task of making money in the markets (LTCM) :)

More...
Nobel prize itself is pretty good money, even if you share it with another guy :p
 
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