Arbitrage in the foreign exchange market: Turning on the microscope

• 成果类型: Article
• 署名作者: Akram, Q. Farooq; Rime, Dagfinn; Sarno, Lucio
• 署名单位: Norges Bank; Norwegian University of Science & Technology (NTNU); University of Warwick; AXA Group; Centre for Economic Policy Research - UK; University of Warwick
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2008.07.004
• 发表日期: 2008
• 页码: 237-253
• 关键词: Exchange rates; arbitrage; Covered interest rate parity; Foreign exchange microstructure

摘要

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. (C) 2008 Elsevier B.V. All rights reserved.