Template-Type: ReDIF-Paper 1.0
Author-Name: Rod Cross
Author-Name-First: Rod
Author-Name-Last: Cross
Author-Email: rod.cross@strath.ac.uk
Author-Workplace-Name: Department of Economics, University of Strathclyde
Author-Name: Victor Kozyakin
Author-Name-First: Victor
Author-Name-Last: Kozyakin
Author-Email: kozyakin@iitp.ru
Author-Workplace-Name: Institute for Information Transmission Problems, Russian Academy of Sciences
Title: Fact and Fiction in FX Arbitrage Processes
Abstract: 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 "quant" 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, O'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.
Length: 14 pages
Creation-Date: 2012-07
Revision-Date: 
Publication-Status: Published
File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2012/12-11-Final.pdf
File-Format: Application/pdf
Number: 1211
Classification-JEL: G10 and F31
Keywords: Triangular Arbitrage; FX Markets;  Periodic Sequences; Asynchronous Systems; The Fear Index
Handle: RePEc:str:wpaper:1211