Este trabalho testa a hipótese de eficiência relativa dos mercados futuro e à vista (spot) de açúcar, para dois horizontes de previsão, em contraposição à hipótese de arbitragem de commodities. Utiliza-se o modelo de não-arbitragem de Brenner e Kroner (1995) e aplica-se a metodologia de testes comparativos proposta por Kellard (2002), que usa a cointegração multivariada com restrição sobre o espaço de cointegração. A base de dados é formada a partir dos futuros do contrato número 11 negociado na Nybot (New York Board of Trade), dos preços no mercado à vista coletados pelo Cepea (Centro de Estudos Avançados em Economia Aplicada) e da taxa de juros doméstica, todas em bases diárias (mai/97 a dez/07). A correspondência da amostra é construída de acordo com os vencimentos dos contratos, considerando-se dois períodos de previsão: 28 e 56 dias. Em linhas gerais, as evidências empíricas encontradas suportam a adequação da metodologia de cointegração para análise de eficiência relativa nos mercados de açúcar, em contraposição à hipótese de arbitragem. Além disso, geram evidências fracas de ineficiência, resultados sujeitos à hipótese de estacionariedade do custo de carregamento, exceto pelo componente taxa de juros.; This study tests the relative efficiency hypothesis of future and spot sugar markets for two forecast horizons...
Fonte: Oxford University Press (OUP)Publicador: Oxford University Press (OUP)
Tipo: Artigo de Revista Científica
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We develop a novel methodology to infer the amount of capital allocated to quantitative equity arbitrage strategies. Using this methodology, which exploits time-variation in the cross section of short interest, we document that the amount of capital devoted to value and momentum strategies has grown significantly since the late 1980s. We provide evidence that this increase in capital has resulted in lower strategy returns. However, consistent with theories of limited arbitrage, we show that strategy-level capital flows are influenced by past strategy returns as well as strategy return volatility, and that arbitrage capital is most limited during times when strategies perform best. This suggests that the growth of arbitrage capital may not completely eliminate returns to these strategies.
The authors argue that the cross-market premium (the ratio between the domestic and the international market price of cross-listed stocks) provides a valuable measure of international financial integration, reflecting accurately the factors that segment markets and inhibit price arbitrage. Applying to equity markets recent methodological developments in the purchasing power parity literature, they show that nonlinear Threshold Autoregressive (TAR) models properly capture the behavior of the cross market premium. The estimates reveal the presence of narrow non-arbitrage bands and indicate that price differences outside these bands are rapidly arbitraged away, much faster than what has been documented for good markets. Moreover, the authors find that financial integration increases with market liquidity. Capital controls, when binding, contribute to segment financial markets by widening the non-arbitrage bands and making price disparities more persistent. Crisis episodes are associated with higher volatility, rather than by more persistent deviations from the law of one price.
This paper highlights the arbitrage activity by firms in Miller’s (1977) equilibrium when consumers face (short) selling constraints to restrict tax arbitrage. In this competitive equilibrium firms create risky taxpreferred securities that divide investors into strict tax clienteles; any changes in debt-equity ratios by individual firms have no real effects on consumers because other firms undo them. While DeAngelo and Masulis obtain this equilibrium with a full set of primitive bonds and a full set of primitive shares, the formalisation here relies only on a full set of conventional securities for firms to buy and sell. Once firms are constrained (for example, when the capital market is incomplete), Kim et al. (1979), Taggart (1980), Kim (1982) and Auerbach and King (1983) identify investor leverage clienteles. This paper demonstrates the arbitrage activity by firms that is implicit in Sarig and Scott (1982) who argue these clienteles are eliminated by standard portfolio theory.; no
The creation of competitive wholesale electricity markets allows to evaluate the “arbitrage value” of
an electricity storage unit, which stems from buying and storing electricity when prices are low, and
selling it when prices are high. The focus of this paper is to demonstrate that the arbitrage value can be
highly sensitive with respect to the dimensioning of an electricity storage unit. A simulation model is
explored to calculate the arbitrage value of different storage units by finding the optimal hourly
operating strategy during one-year period. The results of simulation show that optimizing the
dimensioning of a storage unit is as important as choosing the fittest technology. Furthermore we
provide evidence that the optimal set-up of a storage unit can adapt to exogenous factors such as grid
tariff and local electricity price characteristics. These findings suggest that the maximisation of market
value of electricity storage should be based on the optimisation of the dimensioning of the storage unit
in specific economic and regulatory environment.
This paper empirically tests the level of sequential arbitrage in the Spanish bond market. The test is implemented by drawing on default free and option free pure discount and coupon bonds issued by the Spanish government. This fact seems to be a clear distinction between this paper and the related empirical literature since there are no risky bonds or derivative securities involved in our analysis. As a consequence, the sequential arbitrage absence is just equivalent to the existence of a term structure of interest rates matching the whole set of bond prices as provided by The Bank of Spain. Thus, the main conclusions seem to be robust because they only depend on very general and simple hypotheses and, particularly, no dynamic assumptions are required. The results of the empirical analysis may be useful to traders and researchers since it seems to reveal the existence of sequential arbitrage. Furthermore, the number of arbitrage opportunities significantly increased in 1998, when important innovations were implemented and, amongst other new possibilities, agents began trading each whole bond and its coupons (strips) separately. The inexperience associated with financial innovations may lead to ine¢ciencies in the market.
This paper addresses the equivalence between the absence of arbitrage and the existence of equivalent martingale measures. The equivalence will be established under quite weak assumptions since there are no conditions on the set of trading dates (it may be finite or infinite, with bounded or unbounded horizon, etc.) or on the trajectories of the price process (for instance, they do not have to be right-continuous). Besides we will deal with arbitrage portfolios rather than free-lunches. The concept of arbitrage is much more intuitive than the concept of free lunch and has more clear economic interpretation. Furthermore it is more easily tested in theoretical models or practical applications. In order to overcome the usual mathematical difficulties arising when dealing with arbirage strategies, the set of states of nature will be widened by drawing on projective systems of Radon probability measures, whose projective limit will be the martingale measure. The existence of densities between the "real" probabilities and the "risk-neutral" probabilities will be guaranteed by introducing the concept of "projective equivalence". Hence some classical counter-examples will be solved and a complete characterization of the absence of arbitrage will be provided in a very general framework.
This paper gives two measures of the degree of fulfillment of the Law of One Price. These
measures are characterized by means of saddle point conditions, and are therefore easy to compute in practical situations.
Many empirical papers analyze well-Known arbitrage strategies. Our measures present an
important advantage over this approach, since we globally focus on the market to find its arbitrage opportunities, without studying special strategies.
The developed theory is also applied to markets with frictions, and to study the integration of different financial markets. Our measures are continuous with respect to previous measures in the literature, and seem to be better than them since they compute how much money the agents can win due to the arbitrage opportunities in a financial market, or among different ones.
In this paper we introduce a measure testing the degree of efficiency in securities markets with bidask spreads. The measure tests relative arbitrage profits when there are transaction costs on the prices and payoffs of the assets. Moreover, we prove that the measure is the minimum of the measures of efficiency in all frictionless markets where the prices and payoffs lie between the bid and the ask prices and payoffs respectively. In particular, we fmd that the model is arbitrage-free if and only if there exist convex combinations of the bid and the ask prices and payoffs such that the corresponding frictionless model is arbitrage-free.
Several authors have pointed out the possible absence of martingale
measures for static arbitrage free markets with an infinite number of available
securities. Accordingly, the literature constructs martingale measures by generalizing
the concept of arbitrage (free lunch, free lunch with bounded risk,
etc.) or introducing the theory of large financial markets. This paper does
not modify the definition of arbitrage and addresses the caveat by drawing
on projective systems of probability measures. Thus we analyze those situations
for which one can provide a projective system of σ−additive measures
whose projective limit may be interpreted as a risk-neutral probability of an
arbitrage free market. Hence the Fundamental Theorem of Asset Pricing is
extended so that it can apply for models with infinitely many assets.; Partially funded by the Spanish Ministry of Science and Education (ref: BEC2003 − 09067 −
C04 − 03) and Comunidad Autónoma de Madrid (ref: s − 0505/tic/000230).
The risk arbitrage investment process involves betting on the outcome of announced mergers and acquisitions. We analyzed a sample of 1309 stock and cash mergers from 1996 to 2004 Q2 and developed insights into the risk arbitrage process. We found share price reactions for both the acquirer and target companies as a result of the merger announcement and compared these to factors such as type of merger, premium paid by the acquirer for the target, relative size of the deal to the size of the acquirer and target, and deal consummation time. We utilized this information to develop a merger return prediction model that predicts a merger's return given various deal characteristics. We constructed several portfolios, one using a trading strategy in which we invest equally in every announced deal, one where we invest only in deals that have a predicted return higher than two times the T-Bills rate, one where we invest in deals that have a predicted return higher than 0, and one where we invest in deals with a predicted return higher than one standard deviation of the predicted returns. A subsequent out of sample analysis of' generating a predicted return model using data from 1996 to 1999 and predicting returns from 2000 to 2004 Q2 produces returns of 4.96%...
We give characterizations of asymptotic arbitrage of the first and second
kind and of strong asymptotic arbitrage for large financial markets with small
proportional transaction costs $\la_n$ on market $n$ in terms of contiguity
properties of sequences of equivalent probability measures induced by
$\la_n$--consistent price systems. These results are analogous to the
frictionless case. Our setting is simple, each market $n$ contains two assets
with continuous price processes. The proofs use quantitative versions of the
Halmos--Savage Theorem and a monotone convergence result of nonnegative local
martingales. Moreover, we present an example admitting a strong asymptotic
arbitrage without transaction costs; but with transaction costs $\la_n>0$ on
market $n$ ($\la_n\to0$ not too fast) there does not exist any form of
We study, from the perspective of large financial markets, the asymptotic
arbitrage opportunities in a sequence of binary markets approximating the
fractional Black-Scholes model. This approximating sequence was introduced by
Sottinen and named fractional binary market. The large financial market under
consideration does not satisfy the standard assumptions of the theory of
asymptotic arbitrage. For this reason, we follow a constructive approach to
show first that a strong type of asymptotic arbitrage exists in the large
market without transaction costs. Indeed, with the help of an appropriate
version of the law of large numbers and a stopping time procedure, we construct
a sequence of self-financing strategies, which leads to the desired result.
Next, we introduce, in each small market, proportional transaction costs, and
we construct, following a similar argument, a sequence of self-financing
strategies providing a strong asymptotic arbitrage when the transaction costs
converge fast enough to 0.; Comment: 21 pages
Geometric Arbitrage Theory reformulates a generic asset model possibly
allowing for arbitrage by packaging all assets and their forwards dynamics into
a stochastic principal fibre bundle, with a connection whose parallel transport
encodes discounting and portfolio rebalancing, and whose curvature measures, in
this geometric language, the "instantaneous arbitrage capability" generated by
the market itself. The cashflow bundle is the vector bundle associated to this
stochastic principal fibre bundle for the natural choice of the vector space
fibre. The cashflow bundle carries a stochastic covariant differentiation
induced by the connection on the principal fibre bundle. The link between
arbitrage theory and spectral theory of the connection Laplacian on the vector
bundle is given by the zero eigenspace resulting in a parametrization of all
risk neutral measures equivalent to the statistical one. This indicates that a
market satisfies the no-free-lunch-with vanishing-risk condition if it is only
if $0$ is in the spectrum.; Comment: arXiv admin note: substantial text overlap with arXiv:1406.6805,
The paper studies the concepts of hedging and arbitrage in a non
probabilistic framework. It provides conditions for non probabilistic arbitrage
based on the topological structure of the trajectory space and makes
connections with the usual notion of arbitrage. Several examples illustrate the
non probabilistic arbitrage as well perfect replication of options under
continuous and discontinuous trajectories, the results can then be applied in
probabilistic models path by path. The approach is related to recent financial
models that go beyond semimartingales, we remark on some of these connections
and provide applications of our results to some of these models.
This paper focuses on the stability of the non-arbitrage condition in
discrete time market models when some unknown information $\tau$ is
partially/fully incorporated into the market. Our main conclusions are twofold.
On the one hand, for a fixed market $S$, we prove that the non-arbitrage
condition is preserved under a mild condition. On the other hand, we give the
necessary and sufficient equivalent conditions on the unknown information
$\tau$ to ensure the validity of the non-arbitrage condition for any market.
Two concrete examples are presented to illustrate the importance of these
conditions, where we calculate explicitly the arbitrage opportunities when they
exist.; Comment: 22 pages
We develop robust pricing and hedging of a weighted variance swap when market
prices for a finite number of co--maturing put options are given. We assume the
given prices do not admit arbitrage and deduce no-arbitrage bounds on the
weighted variance swap along with super- and sub- replicating strategies which
enforce them. We find that market quotes for variance swaps are surprisingly
close to the model-free lower bounds we determine. We solve the problem by
transforming it into an analogous question for a European option with a convex
payoff. The lower bound becomes a problem in semi-infinite linear programming
which we solve in detail. The upper bound is explicit.
We work in a model-independent and probability-free setup. In particular we
use and extend F\"ollmer's pathwise stochastic calculus. Appropriate notions of
arbitrage and admissibility are introduced. This allows us to establish the
usual hedging relation between the variance swap and the 'log contract' and
similar connections for weighted variance swaps. Our results take form of a
FTAP: we show that the absence of (weak) arbitrage is equivalent to the
existence of a classical model which reproduces the observed prices via
risk-neutral expectations of discounted payoffs.; Comment: 25 pages...
We introduce the concept of spontaneous symmetry breaking to arbitrage
modeling. In the model, the arbitrage strategy is considered as being in the
symmetry breaking phase and the phase transition between arbitrage mode and
no-arbitrage mode is triggered by a control parameter. We estimate the control
parameter for momentum strategy with real historical data. The momentum
strategy aided by symmetry breaking shows stronger performance and has a better
risk measure than the naive momentum strategy in U.S. and South Korean markets.; Comment: 23 pages, 6 figures; Published version
Strict local martingales may admit arbitrage opportunities with respect to
the class of simple trading strategies. (Since there is no possibility of using
doubling strategies in this framework, the losses are not assumed to be bounded
from below.) We show that for a class of non-negative strict local martingales,
the strong Markov property implies the no arbitrage property with respect to
the class of simple trading strategies. This result can be seen as a
generalization of a similar result on three dimensional Bessel process in .
We also pro- vide no arbitrage conditions for stochastic processes within the
class of simple trading strategies with shortsale restriction.; Comment: Keywords: Simple trading strategies. Arbitrage. Sticky processes.
We propose a unified analysis of a whole spectrum of no-arbitrage conditions
for financial market models based on continuous semimartingales. In particular,
we focus on no-arbitrage conditions weaker than the classical notions of No
Arbitrage and No Free Lunch with Vanishing Risk. We provide a complete
characterisation of the considered no-arbitrage conditions, linking their
validity to the characteristics of the discounted asset price process and to
the existence and the properties of (weak) martingale deflators, and review
classical as well as recent results.; Comment: 28 pages