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: Instititute of Information Transmission problems, Russian Academy of Sciences
Title: Fact and fictions 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: 11 pages
Creation-Date: 2014-04
Revision-Date: 
Publication-Status: Published
File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2014/14-03.pdf
File-Format: Application/pdf
Number: 1403
Classification-JEL: C60, G10, F31
Keywords: Arbitrage sequences, combinatorial analysis, asynchronous systems, the fear index
Handle: RePEc:str:wpaper:1403