Interpreting Johansen Trace Test Results for Pair Trading

Summary

The document presents two Johansen trace test outputs from a pair trading model, using one and two lags, and asks how to interpret them. In both cases, the reported statistics are below their critical values and the p-values exceed the stated significance level. These results do not reject the tested null hypotheses, so the output does not provide evidence of cointegration at the chosen level in these specifications.

The post contains no explanation of the test assumptions, the meaning of each table column, or how to select lag length. It also gives no details about the assets, sampling frequency, model setup, or diagnostics, so the results alone cannot establish whether a pair trading strategy is viable. The author is seeking introductory guidance, but the document supplies no book recommendations or further analysis.

Key ideas

• The document compares Johansen trace test outputs using two different lag settings.
• In both outputs, the trace statistics are below the listed critical values.
• The reported p-values exceed the selected significance level, so the null hypotheses are not rejected.
• The output alone does not determine whether the pair is suitable for trading.

Tags

# Significance of Data


# Significance of Data












The following is a result I get from a pair trading model. I am trying to figure out the significance of the below but failing. Can someone help me out i.e. a resource or possibly an explanation on the significance/result of this:

Results Summary (Test 1)

Data: Effective sample size: 58583 Model: H1 Lags: 1 Statistic: trace Significance level: 0.05

## r  h  stat      cValue   pValue   eigVal

0 0 9.3117 15.4948 0.3847 0.0001 1 0 2.0914 3.8415 0.1483 0.0000

Results Summary (Test 2)

Data: Effective sample size: 58582 Model: H1 Lags: 2 Statistic: trace Significance level: 0.05

## r  h  stat      cValue   pValue   eigVal

0 0 9.1995 15.4948 0.3957 0.0001 1 0 2.0402 3.8415 0.1535 0.0000

Thanks.

PS: I am new to quantitative analysis. Please recommend a book which would be good for an absolute newbie.

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