The proof is in the pudding: Arbitrage is possible in limited emerging markets

M. Ansotegui Olcoz; Aliaa Bassiouny; Eskandar Tooma

doi:10.1016/j.intfin.2012.11.001

The proof is in the pudding: Arbitrage is possible in limited emerging markets

M. Ansotegui Olcoz
, Aliaa Bassiouny^*
, Eskandar Tooma

^*Corresponding author for this work

Research output: Indexed journal article › Article › peer-review

13 Citations (Scopus)

Abstract

We investigate whether arbitrage trades exist in emerging markets with trading barriers. Using two-year intraday data for 16 Argentinean and Egyptian depository receipts and their underlying stock, we find large intraday deviations from parity. We extend the standard arbitrage identification procedure to account for volumes and precise dynamic measures of trading costs, resulting in 9.81% and 15.32% of Argentinean and Egyptian matched trades identified as arbitrage opportunities, which we show, result in real profitable arbitrage trades. Arbitrage profits of USD 1.8 million from Argentinean and USD 1.2 million from Egyptian depository receipts were estimated over the sample period.

Original language	English
Pages (from-to)	342-357
Number of pages	16
Journal	Journal of International Financial Markets, Institutions and Money
Volume	23
Issue number	1
DOIs	https://doi.org/10.1016/j.intfin.2012.11.001
Publication status	Published - Feb 2013
Externally published	Yes

Keywords

Arbitrage
Depository receipts
Emerging markets
Multi-market trading
Transaction costs

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10.1016/j.intfin.2012.11.001

Cite this

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title = "The proof is in the pudding: Arbitrage is possible in limited emerging markets",

abstract = "We investigate whether arbitrage trades exist in emerging markets with trading barriers. Using two-year intraday data for 16 Argentinean and Egyptian depository receipts and their underlying stock, we find large intraday deviations from parity. We extend the standard arbitrage identification procedure to account for volumes and precise dynamic measures of trading costs, resulting in 9.81\% and 15.32\% of Argentinean and Egyptian matched trades identified as arbitrage opportunities, which we show, result in real profitable arbitrage trades. Arbitrage profits of USD 1.8 million from Argentinean and USD 1.2 million from Egyptian depository receipts were estimated over the sample period.",

keywords = "Arbitrage, Depository receipts, Emerging markets, Multi-market trading, Transaction costs",

author = "\{Ansotegui Olcoz\}, M. and Aliaa Bassiouny and Eskandar Tooma",

note = "Funding Information: Carmen Ansotegui holds a degree in Business Administration from Universidad de Zaragoza, a Master in Economic Theory and a PhD in Financial Economics from University of Pennsylvania. She has been lecturer at the Department of Finance Management and Control of ESADE, undertaking research and teaching activities. Her areas of interest include stock market pricing patterns, derivatives, valuation and their use for market risk management and credit risk. Current research activities focus on credit risk, mainly the project Merito, financed by the Spanish Ministry of Technology. ",

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doi = "10.1016/j.intfin.2012.11.001",

language = "English",

volume = "23",

pages = "342--357",

journal = "Journal of International Financial Markets, Institutions and Money",

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AU - Ansotegui Olcoz, M.

AU - Bassiouny, Aliaa

AU - Tooma, Eskandar

N1 - Funding Information: Carmen Ansotegui holds a degree in Business Administration from Universidad de Zaragoza, a Master in Economic Theory and a PhD in Financial Economics from University of Pennsylvania. She has been lecturer at the Department of Finance Management and Control of ESADE, undertaking research and teaching activities. Her areas of interest include stock market pricing patterns, derivatives, valuation and their use for market risk management and credit risk. Current research activities focus on credit risk, mainly the project Merito, financed by the Spanish Ministry of Technology.

PY - 2013/2

Y1 - 2013/2

N2 - We investigate whether arbitrage trades exist in emerging markets with trading barriers. Using two-year intraday data for 16 Argentinean and Egyptian depository receipts and their underlying stock, we find large intraday deviations from parity. We extend the standard arbitrage identification procedure to account for volumes and precise dynamic measures of trading costs, resulting in 9.81% and 15.32% of Argentinean and Egyptian matched trades identified as arbitrage opportunities, which we show, result in real profitable arbitrage trades. Arbitrage profits of USD 1.8 million from Argentinean and USD 1.2 million from Egyptian depository receipts were estimated over the sample period.

AB - We investigate whether arbitrage trades exist in emerging markets with trading barriers. Using two-year intraday data for 16 Argentinean and Egyptian depository receipts and their underlying stock, we find large intraday deviations from parity. We extend the standard arbitrage identification procedure to account for volumes and precise dynamic measures of trading costs, resulting in 9.81% and 15.32% of Argentinean and Egyptian matched trades identified as arbitrage opportunities, which we show, result in real profitable arbitrage trades. Arbitrage profits of USD 1.8 million from Argentinean and USD 1.2 million from Egyptian depository receipts were estimated over the sample period.

KW - Arbitrage

KW - Depository receipts

KW - Emerging markets

KW - Multi-market trading

KW - Transaction costs

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DO - 10.1016/j.intfin.2012.11.001

M3 - Article

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VL - 23

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EP - 357

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

IS - 1

ER -

The proof is in the pudding: Arbitrage is possible in limited emerging markets

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Keywords

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