Fact and fictions in FX arbitrage processes

Rod Cross and Victor Kozyakin ()
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Victor Kozyakin: Instititute of Information Transmission problems, Russian Academy of Sciences

No 1403, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: The efficient markets hypothesis implies that arbitrage opportunities in markets such as those for foreign exchange (FX) would be, at most, short-lived. The present paper surveys the fragmented nature of FX markets, revealing that information in these markets is also likely to be fragmented. The “quant†workforce in the hedge fund featured in The Fear Index novel by Robert Harris would have little or no reason for their existence in an EMH world. The four currency combinatorial analysis of arbitrage sequences contained in Cross, Kozyakin, O’Callaghan, Pokrovskii and Pokrovskiy (2012) is then considered. Their results suggest that arbitrage processes, rather than being self-extinguishing, tend to be periodic in nature. This helps explain the fact that arbitrage dealing tends to be endemic in FX markets.

Keywords: Arbitrage sequences; combinatorial analysis; asynchronous systems; the fear index (search for similar items in EconPapers)
JEL-codes: C60 F31 G10 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2014-04
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Related works:
Working Paper: Fact And Fictions In FX Arbitrage Processes (2014)
Working Paper: Fact And Fiction In FX Arbitrage Processes (2012)
Working Paper: Fact and Fiction in FX Arbitrage Processes (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:str:wpaper:1403

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