Arbitrageur Heterogeneity, Investor Horizon and Arbitrage Opportunities: An Empirical Investigation

Lloyd P Blenman and Janet S Thatcher

The Financial Review, 1997, vol. 32, issue 2, 225-47

Abstract: Evidence is provided that arbitrage profits in integrated currency and credit markets differ according to the initial asset allocation, trading horizon and investment objectives of arbitrageurs. It is shown that several types of profitable one-way strategies can coexist and profits are differently distributed across maturity horizons. Moreover, there are episodes in the markets where particular strategies are consistently profitable. Strategies using the spot market and two credit transactions to create a synthetic forward contract are most likely to result in profitable arbitrage opportunities. This is directly attributable to the higher level of transactions costs in the forward markets. Copyright 1997 by MIT Press.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:32:y:1997:i:2:p:225-47

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