Akram, Qaisar Farooq, Rime, Dagfinn and Sarno, Lucio. (2008) Arbitrage in the foreign exchange market : turning on the microscope. Journal of International Economics, Vol.76 (No.2). pp. 237-253. ISSN 0022-1996

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

Item Type:	Journal Article
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Arbitrage, Foreign exchange rates, Interest rates, Financial instruments
Journal or Publication Title:	Journal of International Economics
Publisher:	Elsevier BV
ISSN:	0022-1996
Date:	December 2008
Volume:	Vol.76
Number:	No.2
Number of Pages:	17
Page Range:	pp. 237-253
Identification Number:	10.1016/j.jinteco.2008.07.004
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Version or Related Resource:	Akram, Q.F., Rime, D. and Sarno, L. (2008). Arbitrage in the foreign exchange market: turning on the microscope. London : Centre for Economic Policy Research. (Discussion paper (Centre for Economic Policy Research (Great Britain)), no.6878). http://wrap.warwick.ac.uk/id/eprint/1712
Related URLs:	Related item in WRAP
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URI:	http://wrap.warwick.ac.uk/id/eprint/28761

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