Are there arbitrage gaps in the UK gilt strips market?

Seth Armitage, Shanti P. Chakravarty, Lynn Hodgkinson and Jo Wells

Journal of Banking & Finance, 2012, vol. 36, issue 11, 3080-3090

Abstract: Evidence in financial markets of an opportunity for pure arbitrage, and therefore a violation of the law of one price, is considered an anomaly to be noted. This paper reports an apparent violation of the law of one price between UK government gilts and their separately traded principal and coupon strips over a sample period of nearly 14years. There are persistent price differences, and hence opportunities for arbitrage, after allowance for the bid-ask spread; the strips package tends to be overpriced in relation to the corresponding gilt. The price differences may, in part, be due to a lack of liquidity and stale prices in the strips market.

Keywords: Gilt; Arbitrage; Anomalies; Law of one price; Market microstructure (search for similar items in EconPapers)
JEL-codes: G14 G19 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:11:p:3080-3090

DOI: 10.1016/j.jbankfin.2012.07.001

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