International high-frequency arbitrage for cross-listed stocks

Cédric Poutré, Georges Dionne () and Gabriel Yergeau

International Review of Financial Analysis, 2023, vol. 89, issue C

Abstract: We explore high-frequency arbitrage activities on international cross-listed stocks and develop a methodology to study the effect of information latency in high-frequency trading. We derive statistical arbitrage bounds for a mean-reverting synthetic instrument engineered from cross-listed stock prices, and we propose a new strategy that takes advantage of price deviations outside these bounds. Market frictions such as trade costs, inventory control, and arbitrage risks are considered. The strategy is tested with cross-listed stocks involving three exchanges in Canada and the United States in 2019. The annual net profit with the limit order strategy is around US$6 million, whereas the market order version is not profitable because of the great interconnectedness between exchanges in our data.

Keywords: Latency arbitrage; High-frequency trading; Cross-listed stocks; Mean-reverting arbitrage; International arbitrage; Supervised machine learning (search for similar items in EconPapers)
JEL-codes: G02 G10 G11 G14 G15 G22 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: International High-Frequency Arbitrage for Cross-Listed Stocks (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:89:y:2023:i:c:s1057521923002934

DOI: 10.1016/j.irfa.2023.102777

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