Arbitrage opportunities between NYSE and XETRA?: A comparison of simulation and high frequency data

Jörg Rieger, Kirsten Rüchardt () and Bodo Vogt ()
Additional contact information
Jörg Rieger: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg
Kirsten Rüchardt: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg
Bodo Vogt: Faculty of Economics and Management, Otto-von-Guericke University Magdeburg

No 110005, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: This paper investigates both the no-arbitrage condition and the efficiency of financial markets by comparing two stock markets: the New York Stock Exchange (NYSE) and the German Exchange Electronic Trading System (XETRA). We analyze German stocks that are traded simultaneously at both exchanges using high frequency data for XETRA, the NYSE, and the foreign exchange rates. Converting Euro-prices into Dollar-prices reveals possibilities to explore the efficiency as well as arbitrage opportunities of these two stock markets using the phenomenon of stock price clustering. We see the result of differing extents of clustering on both exchanges, thus violating the no-arbitrage condition. We propose a trading strategy that exploits these differences. Furthermore, we compare our empirical findings with the results we obtain from simulating financial markets and conclude that simulations based on the no-arbitrage condition are not consistent with our empirical observations.

Keywords: financial markets; simulation; no-arbitrage condition; stochastic processes (search for similar items in EconPapers)
JEL-codes: C00 D40 G12 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-03
New Economics Papers: this item is included in nep-cmp and nep-mst
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.fww.ovgu.de/fww_media/femm/femm_2011/2011_05.pdf First version, 2010 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:110005

Access Statistics for this paper

More papers in FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management Contact information at EDIRC.
Bibliographic data for series maintained by Guido Henkel ().