{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,10,14]],"date-time":"2026-10-14T08:50:58Z","timestamp":1791967858071,"version":"4.3.4"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":0,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>Most studies on statistical arbitrage look at US markets, where borrow rates are predictable and commissions are near zero. India presents a very different reality: single-stock shorting in the cash market is essentially nonexistent due to an illiquid borrow market, forcing traders into futures where taxes and exchange fees eat directly into returns. In this paper, I test whether daily statistical arbitrage works on the National Stock Exchange of India (NSE) from 2010 to 2025. I track three common frameworks: classic distance pairs (Gatev et al. 2006), PCA-factor residual mean-reversion (Avellaneda &amp;amp; Lee 2010), and rolling machine learning models (Guijarro-Ordonez et al. 2021). On paper, without friction, the signals look remarkably strong: gross Sharpe ratios hit +0.95 to +1.74, with Newey-West t-statistics between +4.05 and +7.49. But as soon as you plug in real-world friction-the Securities Transaction Tax (especially after the October 2024 hike), stamp duties, GST, and turnover charges, alongside modest execution slippage-the entire strategy falls apart. Net Sharpe ratios plunge into deep negative territory (-1.63 to-2.96), burning capital at-16.7% to-25.9% each year. Break-even requires cutting costs down to 0.38x of actual institutional levels, which is legally impossible because statutory levies set a hard floor. Adding machine learning actually hurts net performance: while it catches short-term mispricings better on paper, it drives turnover up by 34%, handing even more capital over to taxes. Out of 12 pre-registered robustness tests, none pass multiple-testing corrections or the Deflated Sharpe Ratio. Overall, standalone daily statistical arbitrage simply cannot survive statutory friction in India, though the underlying displacement signals still hold practical promise for institutional execution timing.<\/jats:p>","DOI":"10.2139\/ssrn.7607942","type":"posted-content","created":{"date-parts":[[2026,10,14]],"date-time":"2026-10-14T08:20:11Z","timestamp":1791966011000},"source":"Crossref","is-referenced-by-count":0,"title":["Does Statistical Arbitrage Survive in Indian Equity Derivatives? Evidence from Distance Pairs, Factor Residuals, and Machine Learning (2010- 2025)"],"prefix":"10.2139","author":[{"ORCID":"https:\/\/orcid.org\/0009-0005-4789-7390","authenticated-orcid":true,"given":"Dhairya","family":"Dani","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","container-title":[],"original-title":[],"deposited":{"date-parts":[[2026,10,14]],"date-time":"2026-10-14T08:20:11Z","timestamp":1791966011000},"score":1,"resource":{"primary":{"URL":"https:\/\/www.ssrn.com\/abstract=7607942"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2026]]},"references-count":0,"URL":"https:\/\/doi.org\/10.2139\/ssrn.7607942","relation":{},"subject":[],"published":{"date-parts":[[2026]]},"subtype":"preprint"}}