EconPapers    
Economics at your fingertips  
 

The determinants of a cross market arbitrage opportunity: theory and evidence for the European bond market

Marcelo Perlin (), Alfonso Dufour and Chris Brooks

Annals of Finance, 2014, vol. 10, issue 3, 457-480

Abstract: This paper examines the determinants of cross-platform arbitrage profits. We develop a structural model that enables us to decompose the likelihood of an arbitrage opportunity into three distinct factors: the fixed cost to trade the opportunity, the level at which one of the platforms delays a price update and the impact of the order flow on the quoted prices (inventory and asymmetric information effects). We then investigate the predictions from the theoretical model for the European Bond market with the estimation of a probit model. Our main finding is that the results found in the empirical part corroborate strongly the predictions from the structural model. The event of a cross market arbitrage opportunity has a certain degree of predictability where an optimal ex ante scenario is represented by a low level of spreads on both platforms, a time of the day close to the end of trading hours and a high volume of trade. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Arbitrage opportunities; Negative spreads; Market microstructure; Market efficiency; G15; G17 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1007/s10436-013-0242-5 (text/html)
Access to full text is restricted to subscribers.

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:kap:annfin:v:10:y:2014:i:3:p:457-480

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10436/PS2

DOI: 10.1007/s10436-013-0242-5

Access Statistics for this article

Annals of Finance is currently edited by Anne Villamil

More articles in Annals of Finance from Springer
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2020-09-06
Handle: RePEc:kap:annfin:v:10:y:2014:i:3:p:457-480