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Is there any basic materials (books, papers) to read on Statistical Arbitrage?

I certainly understand much of the useful information is in the industry. I just want to get some understanding on the basic mathematical tools and their applications in finance.

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  • $\begingroup$ There are quite a lot of books on amazon (search for statistical arbitrage) and some papers on SSRN (again search for statistical arbitrage). I guess you need to be a bit more specific about the timeframe and the market... otherwise the topic is probably just too broad to be packed in a single book. $\endgroup$ Commented May 6, 2015 at 15:58

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Start with http://en.wikipedia.org/wiki/Statistical_arbitrage and the references therein. Especially Avellaneda (technical) and Bookstaber (historical, how Bamberger and Thorp got the whole thing started).

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I suggest you to start reading E. P. Chan's books; here below you can find the references:

Chan, Ernest P. "Quantitative Trading." New Jersey (2008).

Chan, Ernest P. "Algorithmic Trading: Winning Strategies and Their Rationale" New Jersey (2013).

His books are written down in a readable and simple way, so that a newbie can understand too, and, he provides a lot of practical examples of strategies implementation in Matlab. I think it could be a good beginning for who wants to start studying in this field. Those books contain also an introduction to other forms of investment, as the factor models, other than about statistical arbitrage-based strategies (mean-reversion, momentum,...). IMHO, it is worth to follow his blog too, where he discusses his strategies with the blog users'.

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Try the Avellaneda (2009) paper. The strategy involves some mean-reverting models and some PCAs. Easy to read without getting too technical.

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