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The behaviour of individual traders and the persistence of arbitrage trading

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  • Sang Buhm Hahn
  • Seungyeon Won
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    Abstract

    This article analyses the influence of individual traders on the persistence of arbitrage opportunities, using futures market data from the Korea Composite Stock Price Index 200. The empirical results show that individual traders traded towards increasing arbitrage opportunities unlike other types of traders. This study helps explain the reason why arbitrage opportunities persist even when arbitrage trading is executed in the real world. According to our empirical results, arbitrage opportunities can persist if the behaviour of individual traders regarding arbitrage opportunities overwhelms other traders who are against arbitrage opportunities. This is not fully explained by previous studies that attributed the persistence of arbitrage opportunities to the limit to arbitrage. In this context, this study suggests that two separate arguments need to be combined for explaining arbitrage trading in the real world, namely studies of arbitrage trading and the behavioural approach.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 18 (2011)
    Issue (Month): 3 ()
    Pages: 257-261

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    Handle: RePEc:taf:apeclt:v:18:y:2011:i:3:p:257-261

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