English, Article, Journal or magazine article edition: FX Arbitrage and Market Liquidity: Statistical Significance and Economic Value Wai-Ming Fong; Giorgio Valente; Joseph K.W. Fung

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Bookmark: http://trove.nla.gov.au/version/17069
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • FX Arbitrage and Market Liquidity: Statistical Significance and Economic Value
Author
  • Wai-Ming Fong
  • Giorgio Valente
  • Joseph K.W. Fung
Physical Description
  • preprint
Notes
  • This paper studies covered interest parity arbitrage violations in foreign exchange markets and their relationship with market liquidity using a novel and unique dataset of tick-by-tick firm quotes for all financial instruments involved in the arbitrage strategy. The statistical analysis reveals that arbitrage opportunities are larger in size and slower to dissipate when market liquidity is poorer. Furthermore, their economic value is sizable but arbitrage profits only accrue to traders who are able to obtain low trading costs. These findings are consistent with a competitive equilibrium with real frictions when some traders have a comparative advantage in arbitrage trading.
  • RePEc:hkm:wpaper:082008
Language
  • English
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