Fact and fictions in FX arbitrage processes
The efficient markets hypothesis implies that arbitrage opportunities in markets such as those for foreign exchange (FX) would be, at most, short-lived. The present paper surveys the fragmented nature of FX markets, revealing that information in these markets is also likely to be fragmented. The â€œquantâ€ workforce in the hedge fund featured in The Fear Index novel by Robert Harris would have little or no reason for their existence in an EMH world. The four currency combinatorial analysis of arbitrage sequences contained in Cross, Kozyakin, Oâ€™Callaghan, Pokrovskii and Pokrovskiy (2012) is then considered. Their results suggest that arbitrage processes, rather than being self-extinguishing, tend to be periodic in nature. This helps explain the fact that arbitrage dealing tends to be endemic in FX markets.
|Date of creation:||Apr 2014|
|Date of revision:|
|Contact details of provider:|| Postal: Sir William Duncan Building, 130 Rottenrow, Glasgow G4 0GE|
Phone: +44 (0)141 548 3842
Fax: +44 (0)141 548 4445
Web page: http://www.strath.ac.uk/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Engel, Charles & West, Kenneth D., 2003.
"Exchange rates and fundamentals,"
Working Paper Series
0248, European Central Bank.
- Charles Engel & Kenneth D. West, 2005. "Exchange Rates and Fundamentals," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 485-517, June.
- Charles Engel & Kenneth D. West, 2003. "Exchange rates and fundamentals," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- Akram, Farooq & Rime, Dagfinn & Sarno, Lucio, 2008.
"Arbitrage in the Foreign Exchange Market: Turning on the Microscope,"
CEPR Discussion Papers
6878, C.E.P.R. Discussion Papers.
- Akram, Q. Farooq & Rime, Dagfinn & Sarno, Lucio, 2008. "Arbitrage in the foreign exchange market: Turning on the microscope," Journal of International Economics, Elsevier, vol. 76(2), pages 237-253, December.
- Q. Farooq Akram, & Dagfinn Rime & Lucio Sarno, 2005. "Arbitrage in the foreign exchange market: Turning on the microscope," Working Paper 2005/12, Norges Bank.
- Akram, Q. Farooq & Rime, Dagfinn & Sarno, Lucio, 2006. "Arbitrage in the Foreign Exchange Market: Turning on the Microscope," SIFR Research Report Series 42, Institute for Financial Research.
- Osler, Carol L., 2005.
"Stop-loss orders and price cascades in currency markets,"
Journal of International Money and Finance,
Elsevier, vol. 24(2), pages 219-241, March.
- Carol L. Osler, 2002. "Stop-loss orders and price cascades in currency markets," Staff Reports 150, Federal Reserve Bank of New York.
- Rod Cross & Victor Kozyakin & Brian O'Callaghan & Alexei Pokrovskii & Alexey Pokrovskiy, 2012.
"Periodic Sequences Of Arbitrage: A Tale Of Four Currencies,"
Wiley Blackwell, vol. 63(2), pages 250-294, 05.
- Rod Cross & Victor Kozyakin & Brian O'Callaghan & Alexei Pokrovskii & Alexey Pokrovskiy, 2010. "Periodic Sequences of Arbitrage: A Tale of Four Currencies," Working Papers 1019, University of Strathclyde Business School, Department of Economics.
- Cross, Rod & Kozyakin, Victor & O’Callaghan, Brian & Pokrovskii, Alexei & Pokrovskiy, Alexey, 2010. "Periodic Sequences of Arbitrage: A Tale of Four Currencies," SIRE Discussion Papers 2010-66, Scottish Institute for Research in Economics (SIRE).
- Rod Cross & Victor Kozyakin & Brian O'Callaghan & Alexei Pokrovskii & Alexey Pokrovskiy, 2011. "Periodic Sequences of Arbitrage: A Tale of Four Currencies," Papers 1112.5850, arXiv.org.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Fisher,Franklin M., 1989. "Disequilibrium Foundations of Equilibrium Economics," Cambridge Books, Cambridge University Press, number 9780521378567, 1.
- Martin D.D. Evans & Richard K. Lyons, 2005.
"Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting,"
NBER Working Papers
11042, National Bureau of Economic Research, Inc.
- Martin D. D. Evans & Richard K. Lyons, 2005. "Meese-Rogoff Redux: Micro-Based Exchange-Rate Forecasting," American Economic Review, American Economic Association, vol. 95(2), pages 405-414, May.
- Martin D. D. Evans(Georgetown University and NBER) and Richard K. Lyons(U.C. Berkeley and NBER, Haas School of Business), 2005. "Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting," Working Papers gueconwpa~05-05-01, Georgetown University, Department of Economics.
- Alain P. Chaboud & Benjamin Chiquoine & Erik Hjalmarsson & Clara Vega, 2009. "Rise of the machines: algorithmic trading in the foreign exchange market," International Finance Discussion Papers 980, Board of Governors of the Federal Reserve System (U.S.).
- Rod Cross & Victor Kozyakin, 2012. "Double Exponential Instability of Triangular Arbitrage Systems," Papers 1204.3422, arXiv.org, revised Jun 2012.
When requesting a correction, please mention this item's handle: RePEc:str:wpaper:1403. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kirsty Hall)
If references are entirely missing, you can add them using this form.