Asymmetric arbitrage and default premiums between the US and Russian financial markets
Taylor, Mark P. and Branson, Elena Tchernykh . (2004) Asymmetric arbitrage and default premiums between the US and Russian financial markets. IMF Staff Papers, 51 (2). pp. 257-275. ISSN 1020-7635Full text not available from this repository.
Official URL: http://dx.doi.org/10.2307/30035875
Deviations from covered interest rate parity (CIP) and from a generalized form of CIP involving forward forward arbitrage between the Russian Treasury bill (GKO) market and the U.S. Treasury bill market are modeled nonlinearly. We find a noarbitrage band within which deviations are random, outside of which deviations revert to the edge of the band. The band is asymmetric, implying that small profit margins trigger arbitrage into the dollar, but large profit margins are needed to trigger arbitrage into the ruble. The bandwidth rises and the speed of mean reversion falls as the maturity increases. The findings are consistent with the existence of Russian default premiums.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HG Finance
H Social Sciences > HC Economic History and Conditions
|Divisions:||Faculty of Social Sciences > Warwick Business School|
|Journal or Publication Title:||IMF Staff Papers|
|Publisher:||International Monetary Fund|
|Number of Pages:||19|
|Page Range:||pp. 257-275|
|Access rights to Published version:||Restricted or Subscription Access|
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