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Arbitrageur Heterogeneity, Investor Horizon and Arbitrage Opportunities: An Empirical Investigation

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  • Blenman, Lloyd P
  • Thatcher, Janet S

Abstract

Evidence is provided that arbitrage profits in integrated currency and credit markets differ according to the initial asset allocation, trading horizon and investment objectives of arbitrageurs. It is shown that several types of profitable one-way strategies can coexist and profits are differently distributed across maturity horizons. Moreover, there are episodes in the markets where particular strategies are consistently profitable. Strategies using the spot market and two credit transactions to create a synthetic forward contract are most likely to result in profitable arbitrage opportunities. This is directly attributable to the higher level of transactions costs in the forward markets. Copyright 1997 by MIT Press.

Suggested Citation

  • Blenman, Lloyd P & Thatcher, Janet S, 1997. "Arbitrageur Heterogeneity, Investor Horizon and Arbitrage Opportunities: An Empirical Investigation," The Financial Review, Eastern Finance Association, vol. 32(2), pages 225-247, May.
    • Handle: RePEc:bla:finrev:v:32:y:1997:i:2:p:225-47
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    Cited by:

    1. Blenman, Lloyd P. & Chen, Jianguo, 2001. "Non-reversed trade and equilibrium in forward exchange markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(2), pages 259-277.
    2. Ghosh, Dilip K., 1997. "Risk-free profits with forward contracts in exchange rates and interest rates," Journal of Multinational Financial Management, Elsevier, vol. 7(3), pages 253-264, October.

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