The Dynamics of Financially Constrained Arbitrage

• 成果类型: Article
• 署名作者: Gromb, Denis; Vayanos, Dimitri
• 署名单位: Hautes Etudes Commerciales (HEC) Paris; University of London; London School Economics & Political Science
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12689
• 发表日期: 2018
• 页码: 1713-1750
• 关键词: PORTFOLIO CONSTRAINTS; collateral constraints; equilibrium; MARKETS; price; economies; liquidity; LIMITS

摘要

We develop a model in which financially constrained arbitrageurs exploit price discrepancies across segmented markets. We show that the dynamics of arbitrage capital are self-correcting: following a shock that depletes capital, returns increase, which allows capital to be gradually replenished. Spreads increase more for trades with volatile fundamentals or more time to convergence. Arbitrageurs cut their positions more in those trades, except when volatility concerns the hedgeable component. Financial constraints yield a positive cross-sectional relationship between spreads/returns and betas with respect to arbitrage capital. Diversification of arbitrageurs across markets induces contagion, but generally lowers arbitrageurs' risk and price volatility.