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Journal articles on the topic 'Arbitrage Theory'

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Published: 4 June 2021
Last updated: 1 February 2022

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1

Miller, Edward M. "Arbitrage pricing theory." Journal of Portfolio Management 18, no. 1 (October 31, 1991): 72–76. http://dx.doi.org/10.3905/jpm.1991.409392.

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2

Clark, Stephen A. "Arbitrage approximation theory." Journal of Mathematical Economics 33, no. 2 (March 2000): 167–81. http://dx.doi.org/10.1016/s0304-4068(99)00016-6.

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3

Reisman, Haim. "Intertemporal Arbitrage Pricing Theory." Review of Financial Studies 5, no. 1 (January 1992): 105–22. http://dx.doi.org/10.1093/rfs/5.1.105.

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4

Acharya, Viral V., Hyun Song Shin, and Tanju Yorulmazer. "A Theory of Arbitrage Capital." Review of Corporate Finance Studies 2, no. 1 (January 17, 2013): 62–97. http://dx.doi.org/10.1093/rcfs/cfs006.

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We present a model of equilibrium allocation of capital for arbitrage. If asset prices may fall low enough, it is profitable to carry liquid capital to acquire assets in such states. Set against this, keeping capital in liquid form entails costs in terms of foregone profitable investments. This trade-off generates occasional fire sales and limited arbitrage capital as robust phenomena. With learning-by-doing effects, arbitrage capital moves in to acquire assets only if fire sales are steep. However, once arbitrage capital finds it profitable to acquire assets, it requires similar returns elsewhere, inducing contagious fire-sale prices even for unrelated assets. (JEL G21, G28, G38, E58, D62)
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5

Gilles, Christian, and Stephen F. LeRoy. "On the arbitrage pricing theory." Economic Theory 1, no. 3 (September 1991): 213–29. http://dx.doi.org/10.1007/bf01210561.

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6

Sick, Gordon, and William T. Ziemba. "Arbitrage theory: Introductory lectures on arbitrage-based financial asset pricing." European Journal of Operational Research 27, no. 2 (October 1986): 255–56. http://dx.doi.org/10.1016/0377-2217(86)90072-x.

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7

Stapleton, Richard, Gregory Connor, Marti G. Subrahmanyam, and Bernd P. Luedecke. "Arbitrage Pricing Theory: The Way Forward." Australian Journal of Management 10, no. 1 (June 1985): 109–30. http://dx.doi.org/10.1177/031289628501000108.

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8

Rambaud, Salvador Cruz. "Arbitrage Theory with State-Price Deflators." Stochastic Models 29, no. 3 (July 3, 2013): 306–27. http://dx.doi.org/10.1080/15326349.2013.808902.

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9

LATHAM, MARK. "The Arbitrage Pricing Theory and Supershares." Journal of Finance 44, no. 2 (June 1989): 263–82. http://dx.doi.org/10.1111/j.1540-6261.1989.tb05057.x.

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10

FRAHM, GABRIEL. "ARBITRAGE PRICING THEORY IN ERGODIC MARKETS." International Journal of Theoretical and Applied Finance 21, no. 05 (August 2018): 1850036. http://dx.doi.org/10.1142/s021902491850036x.

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Traditional approaches to Arbitrage Pricing Theory (APT) propose a factor model, but empirical applications of APT are, nowadays, based on seemingly unrelated regression. I drop the factor model and assume only that the market is ergodic. This enables me to apply the theory of Hilbert spaces in a natural way. The expected return on any asset can always be approximated by an affine-linear function of its betas and we are able to estimate the relative number of assets that violate the APT equation by taking the expected returns and betas in the market into account. I present a simple sufficient condition for the APT equation in its inexact form. Further, I show that the APT equation holds true in its exact form if and only if an equilibrium market is exhaustive, which means that it must be possible to replicate the betas and idiosyncratic risk of each asset by some strategy that diversifies away all approximation errors in the market.
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11

Leković, Miljan. "Scope of the arbitrage pricing theory." Anali Ekonomskog fakulteta u Subotici, no. 42 (2019): 129–45. http://dx.doi.org/10.5937/aneksub1942129l.

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12

Farinelli, Simone. "Geometric arbitrage theory and market dynamics." Journal of Geometric Mechanics 7, no. 4 (2015): 431–71. http://dx.doi.org/10.3934/jgm.2015.7.431.

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13

French, Jordan. "Macroeconomic Forces and Arbitrage Pricing Theory." Journal of Comparative Asian Development 16, no. 1 (January 2, 2017): 1–20. http://dx.doi.org/10.1080/15339114.2017.1297245.

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14

�etin, Umut, Robert A. Jarrow, and Philip Protter. "Liquidity risk and arbitrage pricing theory." Finance and Stochastics 8, no. 3 (August 1, 2004): 311–41. http://dx.doi.org/10.1007/s00780-004-0123-x.

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15

McKiernan, Barbara. "Uncertainty and the arbitrage pricing theory." Atlantic Economic Journal 25, no. 3 (September 1997): 307–11. http://dx.doi.org/10.1007/bf02298412.

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16

Yoo, Jin, and Geun Beom Kim. "Theory and Evidence of Arbitrage Trading of Equity Futures." Journal of Derivatives and Quantitative Studies 18, no. 4 (November 30, 2010): 69–108. http://dx.doi.org/10.1108/jdqs-04-2010-b0004.

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The equity futures market was opened in May 6th, 2008 for the first time in Korea but nonetheless it has rarely been researched since. In this paper, we examine whether the market, combined with the stock market, its underlying market, has been offering any arbitrage opportunities to market participants for the period of May 6th, 2008 to March 11, 2010, focusing on the two futures contracts of Samsung Electronics and Hyundai Motors, the two most actively traded ones. Our findings are as follows. First, there have been arbitrage opportunities for the two futures in either direction. Second, the average time period for an arbitrage opportunity was two seconds so arbitrage transactions were feasible indeed. Third, nevertheless, some arbitrage transactions ended up with a loss because the estimated spot price at maturity to carry out an arbitrage trading turned out to be significantly different from the realized one. The discrepancy in these two prices causes a seemingly very safe arbitrage trading a risky one. This risky feature of an arbitrage trading has never been addressed in depth in a paper or a book before, and is a major contribution of this paper.
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17

Rey, Sebastián A. "Theory of long-term interest rates." International Journal of Financial Engineering 03, no. 03 (September 2016): 1650013. http://dx.doi.org/10.1142/s2424786316500134.

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This paper develops a general framework for deriving an arbitrage-free interest rates term structure related to long maturities that are not observed (traded) in the market. The original contribution is that the obtained long-term curve depends on variables that can be observed in the market or can be derived from it, avoiding the necessity of establishing arbitrary assumptions related to the ultimate long-term rate and how the convergence takes place.
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18

Gloukhovtsev, Alexei, John W. Schouten, and Pekka Mattila. "Toward a General Theory of Regulatory Arbitrage: A Marketing Systems Perspective." Journal of Public Policy & Marketing 37, no. 1 (April 2018): 142–51. http://dx.doi.org/10.1509/jppm.16.0178.

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Businesses and consumers frequently exploit differences in laws and policies across jurisdictions to circumvent local laws, regulations, or restrictions. This practice, known as regulatory arbitrage, can have negative consequences for both business and social welfare. Although previous research examines regulatory arbitrage in specific contexts such as financial markets and the pharmaceutical industry, a general framework remains missing. Drawing on marketing systems theory, this study proposes a conceptualization that reflects the necessary conditions for regulatory arbitrage to occur across a variety of contexts. It also derives a typology of strategies to prevent and eliminate regulatory arbitrage. Using the context of alcohol policy in Finland as an illustrative example, the study applies the conceptualization to examine a situation where regulatory arbitrage has repeatedly threatened local policy. The findings illustrate how the broader perspective offered by marketing systems theory can help to more accurately predict whether businesses and consumers will pursue regulatory arbitrage in a given situation, and to select appropriate strategies for preventing and eliminating regulatory arbitrage in situations where it has negative consequences.
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19

Abeysekera, Sarath P., and Arvind Mahajan. "International Arbitrage Pricing Theory: An Empirical Investigation." Southern Economic Journal 56, no. 3 (January 1990): 760. http://dx.doi.org/10.2307/1059376.

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20

Carassus, Laurence, and Miklós Rásonyi. "Risk-Neutral Pricing for Arbitrage Pricing Theory." Journal of Optimization Theory and Applications 186, no. 1 (June 23, 2020): 248–63. http://dx.doi.org/10.1007/s10957-020-01699-6.

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21

Clyman, Dana R. "International arbitrage pricing theory: Relating risk premia." International Review of Financial Analysis 6, no. 1 (January 1997): 13–20. http://dx.doi.org/10.1016/s1057-5219(97)90016-8.

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22

Chang, Shih-Kang, and Latha Shanker. "OPTION PRICING AND THE ARBITRAGE PRICING THEORY." Financial Review 21, no. 3 (August 1986): 17. http://dx.doi.org/10.1111/j.1540-6288.1986.tb00681.x.

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23

Parhizgari, A. M., K. Dandapani, and A. J. Prakash. "ARBITRAGE PRICING THEORY AND THE INVESTMENT HORIZON." Journal of Business Finance & Accounting 20, no. 1 (January 1993): 27–40. http://dx.doi.org/10.1111/j.1468-5957.1993.tb00248.x.

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24

Burzoni, Matteo, Marco Frittelli, Zhaoxu Hou, Marco Maggis, and Jan Obłój. "Pointwise Arbitrage Pricing Theory in Discrete Time." Mathematics of Operations Research 44, no. 3 (August 2019): 1034–57. http://dx.doi.org/10.1287/moor.2018.0956.

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25

CHO, D. CHINHYUNG, CHEOL S. EUN, and LEMMA W. SENBET. "International Arbitrage Pricing Theory: An Empirical Investigation." Journal of Finance 41, no. 2 (June 1986): 313–29. http://dx.doi.org/10.1111/j.1540-6261.1986.tb05038.x.

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26

van Rensburg, P. "Investment Basics: XXXIV. The arbitrage pricing theory." Investment Analysts Journal 26, no. 46 (January 1997): 60–64. http://dx.doi.org/10.1080/10293523.1997.11082381.

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27

Chang, Jack S. K., and Latha Shanker. "OPTION PRICING AND THE ARBITRAGE PRICING THEORY." Journal of Financial Research 10, no. 1 (March 1987): 1–16. http://dx.doi.org/10.1111/j.1475-6803.1987.tb00470.x.

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28

Jarrow, Robert A. "Preferences, Continuity, and the Arbitrage Pricing Theory." Review of Financial Studies 1, no. 2 (April 1988): 159–72. http://dx.doi.org/10.1093/rfs/1.2.159.

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29

Connor, Gregory, and Robert A. Korajczyk. "Performance measurement with the arbitrage pricing theory." Journal of Financial Economics 15, no. 3 (March 1986): 373–94. http://dx.doi.org/10.1016/0304-405x(86)90027-9.

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30

Clark, Stephen A. "The valuation problem in arbitrage price theory." Journal of Mathematical Economics 22, no. 5 (1993): 463–78. http://dx.doi.org/10.1016/0304-4068(93)90037-l.

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31

Thorbecke, Willem, and Geoff Chisholm. "Nonfarm employment and the arbitrage pricing theory." Economics Letters 47, no. 2 (February 1995): 193–98. http://dx.doi.org/10.1016/0165-1765(94)00537-c.

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32

Hombert, Johan, and David Thesmar. "Overcoming limits of arbitrage: Theory and evidence." Journal of Financial Economics 111, no. 1 (January 2014): 26–44. http://dx.doi.org/10.1016/j.jfineco.2013.09.003.

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33

Rásonyi, Miklós. "Arbitrage pricing theory and risk-neutral measures." Decisions in Economics and Finance 27, no. 2 (December 2004): 109–23. http://dx.doi.org/10.1007/s10203-004-0047-0.

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34

Stadnik, Bohumil. "INTEREST RATES SENSITIVITY ARBITRAGE – THEORY AND PRACTICAL ASSESMENT FOR FINANCIAL MARKET TRADING." Journal Business, Management and Economics Engineering 19, no. 01 (February 9, 2021): 12–23. http://dx.doi.org/10.3846/bmee.2021.12658.

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Purpose – Nowadays popular algorithmic trading uses many strategies which are algoritmizable and promise profitability. This research assess if it is possible successfully use interest rates sensitivity arbitrage in bond portfolio (also known as convexity arbitrage) in financial praxis. This arbitrage is sparsely described in literature and an assessment about its practical success is missing. Research methodology – Methodology steps: mathematical definition of given arbitrage; construction of sufficient portfolio; backtesting on USD zero-coupon curves. Portfolio of two bonds is constructed (theoretically and practically) to have the same Macaulay duration and price, but a different convexity at certain YTM point. Therefore, being long the first bond while shorting the second (of higher convexity) would result in a market-directional bet for parallel zero-coupon yield curve shifts. Findings – To construct practically the portfolio which is sufficient for the convexity arbitrage could be unrealistic on markets with low liquidity; the presumptions necessary to practically succeed are not fulfilled enough to ensure the arbitrage is profitable. Research limitations – The backtesting is limited to USD market, testing other markets is recommended, but different result is not expected. Practical implications – The research helps practitioners considering this strategy for its implementation to algorithmic trading. Originality/Value – New important results for financial practitioners; states that practical and profitable utilization of convexity arbitrage is unrealizable and save costs during implementation of the strategy.
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35

Beunza, Daniel, Iain Hardie, and Donald MacKenzie. "A Price is a Social Thing: Towards a Material Sociology of Arbitrage." Organization Studies 27, no. 5 (January 9, 2006): 721–45. http://dx.doi.org/10.1177/0170840606065923.

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Arbitrage is a form of trading crucial both to the modern theory of finance and to market practice, yet it has seldom been the focus of study outside of economics. This article draws upon four initially separate ethnographic and interview-based studies to sketch a ‘material sociology’ of arbitrage. (The article follows financial market usage in viewing ‘arbitrage’ as trading that exploits discrepancies in relative prices, trading which is seldom the entirely riskless arbitrage posited by finance theory.) Prices are physical entities, and the extent and speed of the mobility of these entities are crucial to arbitrage. Traders' bodies sometimes need to be trained to conduct arbitrage, and the relative placement of different bodies can be crucial. Arbitrage generally involves a theory of the similarity of different assets, and material representations of relative value are often required in order to check the theory's plausibility. Arbitrageurs need to convince themselves and others such as investment-bank managers — and sometimes traders working for different organizations — of the correctness of the theory. Among the reasons this is necessary is that an arbitrage position often incurs losses before it becomes profitable, and those who provide arbitrageurs with capital have to be persuaded that those losses are indeed temporary. Patterns of trust and information exchange among known others are thus consequential, and arbitrage also has wider social aspects, manifest for example in deliberately constructed barriers to the short sales often required for arbitrage. Sometimes, too, arbitrage impinges on informal norms of proper conduct in markets.
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36

Xu, Liu. "The application of the improved option parity arbitrage model in SSE 50ETF option." E3S Web of Conferences 233 (2021): 01169. http://dx.doi.org/10.1051/e3sconf/202123301169.

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The SSE 50ETF option is China's first stock index option product launched in 2015. For a number of reasons, the options market can sometimes create arbitrage opportunities. Based on the theory of option parity arbitrage and taking into account the transaction costs, this paper explores effective options arbitrage strategies and practices them. Based on the theory of option parity arbitrage and taking into account the transaction costs, this paper establishes an effective option arbitrage strategy model and puts it into practice. The results show that there are indeed arbitrage opportunities in the market that exceed the risk-free rate of return, but there are not many such opportunities, and there is not much arbitrage space under many opportunities. This is not only the embodiment of high market efficiency, but also the result of taking various transaction costs into full consideration in this paper to ensure the effectiveness of arbitrage.
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37

Lepinette, Emmanuel, and Tuan Tran. "Arbitrage theory for non convex financial market models." Stochastic Processes and their Applications 127, no. 10 (October 2017): 3331–53. http://dx.doi.org/10.1016/j.spa.2017.01.011.

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38

Burmeister, Edwin, and Kent D. Wall. "THE ARBITRAGE PRICING THEORY AND MACROECONOMIC FACTOR MEASURES." Financial Review 20, no. 3 (August 1985): 19. http://dx.doi.org/10.1111/j.1540-6288.1985.tb00197.x.

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39

Burmeister, Edwin, and Kent D. Wall. "THE ARBITRAGE PRICING THEORY AND MACROECONOMIC FACTOR MEASURES." Financial Review 21, no. 1 (February 1986): 1–20. http://dx.doi.org/10.1111/j.1540-6288.1986.tb01103.x.

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40

SHANKEN, JAY. "The Current State of the Arbitrage Pricing Theory." Journal of Finance 47, no. 4 (September 1992): 1569–74. http://dx.doi.org/10.1111/j.1540-6261.1992.tb04671.x.

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41

MEI, JIANPING. "A Semiautoregression Approach to the Arbitrage Pricing Theory." Journal of Finance 48, no. 2 (June 1993): 599–620. http://dx.doi.org/10.1111/j.1540-6261.1993.tb04729.x.

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42

Cox, Samuel H. "Björk, Tomas, 1998,Arbitrage Theory in Continuous Time." North American Actuarial Journal 4, no. 2 (April 2000): 146–48. http://dx.doi.org/10.1080/10920277.2000.10595918.

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43

Hamao, Yasushi. "An empirical examination of the Arbitrage Pricing Theory." Japan and the World Economy 1, no. 1 (October 1988): 45–61. http://dx.doi.org/10.1016/0922-1425(88)90005-9.

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44

Lehmann, Bruce N., and David M. Modest. "The empirical foundations of the arbitrage pricing theory." Journal of Financial Economics 21, no. 2 (September 1988): 213–54. http://dx.doi.org/10.1016/0304-405x(88)90061-x.

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45

Caporale, Tony, and Willem Thorbecke. "The budget deficit and the arbitrage pricing theory." Economics Letters 41, no. 3 (January 1993): 313–17. http://dx.doi.org/10.1016/0165-1765(93)90159-a.

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46

Miller, Edward M. "A Problem in Textbook Arbitrage Pricing Theory Examples." Financial Management 18, no. 2 (1989): 9. http://dx.doi.org/10.2307/3665887.

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47

GULKO, LES. "THE ENTROPY THEORY OF BOND OPTION PRICING." International Journal of Theoretical and Applied Finance 05, no. 04 (June 2002): 355–83. http://dx.doi.org/10.1142/s021902490200147x.

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An informationally efficient price keeps investors as a group in the state of maximum uncertainty about the next price change. The Entropy Pricing Theory (EPT) captures this intuition and suggests that, in informationally efficient markets, perfectly uncertain market beliefs must prevail. When the entropy functional is used to index collective market uncertainty, then the entropy-maximizing consensus beliefs must prevail. The EPT resolves the ambiguity of arbitrage-free valuation in incomplete markets. The EPT produces a new bond option model that is similar to Black–Scholes' with the lognormal distribution replaced by a beta distribution. Unlike alternative models, the beta model is valid for arbitrary term structure dynamics and for arbitrary credit risk of the underlying bonds. Option replication and hedging under the beta model accounts for random changes in the underlying bond price, price volatility and short-term interest rates.
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48

Venter, Gary G. "Premium Calculation Implications of Reinsurance Without Arbitrage." ASTIN Bulletin 21, no. 2 (November 1991): 223–30. http://dx.doi.org/10.2143/ast.21.2.2005365.

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AbstractConstraints imposed on premium calculation principles are studied under one aspect of competitive market theory: the impossibility of systematic arbitrage. Principles based on second moments or utility theory are shown to lead to arbitrage possibilities, while some other principles do not.
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49

J., Oyetayo Oluwatosin, and Adeyeye Patrick Olufemi. "A Robust Application of the Arbitrage Pricing Theory: Evidence from Nigeria." Journal of Economics and Behavioral Studies 9, no. 1(J) (March 12, 2017): 141–51. http://dx.doi.org/10.22610/jebs.v9i1(j).1565.

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Arbitrage pricing theory (APT) is a testable theory based on the idea that in competitive financial markets arbitrage will ensure that riskless assets provide the same expected return. We sought to confirm the relevance of the arbitrage pricing theory in Nigeria. Guided by a good understanding of macroeconomic variables and stock price movements as found in the extant literature on arbitrage pricing theory (APT), we specified our APT equation for estimation. Having satisfied the integration and co-integration issues, we employ the error-correction (ECM) and the fully modified ordinary least squares (FMOLS) methods for the short-run and long-run regressions. Our short-run results seem to agree with existing theories on APT thus confirming that APT is relevant in Nigeria. However, the long-run relationship of stock returns and RGDP was found to be contentious. Even though our result runs contrary to predictions on the relationship between the two, we found peculiar events and circumstances within the Nigerian macroeconomic context that provides logical reasons for the deviation.
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50

J., Oyetayo Oluwatosin, and Adeyeye Patrick Olufemi. "A Robust Application of the Arbitrage Pricing Theory: Evidence from Nigeria." Journal of Economics and Behavioral Studies 9, no. 1 (March 12, 2017): 141. http://dx.doi.org/10.22610/jebs.v9i1.1565.

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Arbitrage pricing theory (APT) is a testable theory based on the idea that in competitive financial markets arbitrage will ensure that riskless assets provide the same expected return. We sought to confirm the relevance of the arbitrage pricing theory in Nigeria. Guided by a good understanding of macroeconomic variables and stock price movements as found in the extant literature on arbitrage pricing theory (APT), we specified our APT equation for estimation. Having satisfied the integration and co-integration issues, we employ the error-correction (ECM) and the fully modified ordinary least squares (FMOLS) methods for the short-run and long-run regressions. Our short-run results seem to agree with existing theories on APT thus confirming that APT is relevant in Nigeria. However, the long-run relationship of stock returns and RGDP was found to be contentious. Even though our result runs contrary to predictions on the relationship between the two, we found peculiar events and circumstances within the Nigerian macroeconomic context that provides logical reasons for the deviation.
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