Sure Profits via Flash Strategies and the Impossibility of Predictable Jumps

Claudio Fontana, Markus Pelger and Eckhard Platen ()
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Claudio Fontana: Laboratoire de Probabilites et Modeles Aleatoires, Paris Diderot University

No 385, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: In an arbitrage-free financial market, asset prices should not exhibit jumps of a predictable magnitude at predictable times. We provide a rigorous formulation of this result in a fully general setting, only allowing for buy-and-hold positions and without imposing any semimartingale restriction. We show that asset prices do not exhibit predictable jumps if and only if there is no possibility of obtaining sure profits via high-frequency limits of buy-and-hold trading strategies. Our results imply that, under minimal assumptions, price changes occurring at scheduled dates should only be due to unanticipated information releases.

Keywords: Absence of arbitrage; predictable time; semimartingale; high-frequency trading (search for similar items in EconPapers)
JEL-codes: C02 G12 G14 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2017-08-01
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (1)

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