EconPapers    
Economics at your fingertips  
 

Arbitrage in the Foreign Exchange Market: Turning on the Microscope

Qaisar Akram, Dagfinn Rime () and Lucio Sarno ()

No 6878, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper provides real-time evidence on the frequency, size, duration and economic significance of arbitrage opportunities in the foreign exchange market. We investigate deviations from the covered interest rate parity (CIP) condition using a unique data set for three major capital and foreign exchange markets that covers a period of more than seven months at tick frequency. The analysis unveils that: i) short-lived violations of CIP arise; ii) the size of CIP violations can be economically significant; iii) their duration is, on average, high enough to allow agents to exploit them, but low enough to explain why such opportunities have gone undetected in much previous research using data at lower frequency.

Keywords: arbitrage; covered interest rate parity; exchange rates; foreign exchange microstructure (search for similar items in EconPapers)
JEL-codes: F31 F41 G14 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mst and nep-opm
Date: 2008-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (134) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6878 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Arbitrage in the foreign exchange market: Turning on the microscope (2008) Downloads
Working Paper: Arbitrage in the Foreign Exchange Market: Turning on the Microscope (2006) Downloads
Working Paper: Arbitrage in the foreign exchange market: Turning on the microscope (2005) Downloads
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:cpr:ceprdp:6878

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=6878

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2019-10-09
Handle: RePEc:cpr:ceprdp:6878