International High-Frequency Arbitrage for Cross-Listed Stocks
Cédric Poutré (),
Georges Dionne and
Gabriel Yergeau ()
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Cédric Poutré: Université de Montréal
Gabriel Yergeau: HEC Montreal, Canada Research Chair in Risk Management
No 21-4, Working Papers from HEC Montreal, Canada Research Chair in Risk Management
We explore latency arbitrage activities with a new arbitrage strategy that we test with high-frequency data during the first six months of 2019. We study the profitability of mean-reverting arbitrage activities of 74 cross-listed stocks involving three exchanges in Canada and the United States. Our arbitrage strategy is a hybrid between triangular arbitrage and pairs trading. We synchronize the high-frequency data feeds from the three exchange venues considering explicitly the latency that comes from the transportation of information between the exchanges and its treatment time. Other trading costs and arbitrage risks are also considered. The annual net profit of an HFT firm that uses limit orders is around CAD $8 million (USD $6 million), a result that we consider reasonable when compared with the previous literature. International latency arbitrage with market orders is never profitable.
Keywords: Latency arbitrage; cross-listed stock; high-frequency trading; limit order; market order; synthetic hedging instrument; mean-reverting arbitrage; international arbitrage; supervised machine learning (search for similar items in EconPapers)
JEL-codes: G02 G10 G11 G14 G15 G22 (search for similar items in EconPapers)
Pages: 85 pages
New Economics Papers: this item is included in nep-cmp, nep-cwa and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:ris:crcrmw:2021_004
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