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The conditional impact of market conditions, volatility and liquidity shocks on the arbitrage opportunities during pre‐COVID and COVID periods

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  • VDMV Lakshmi
  • Garima Sisodia
  • Anto Joseph
  • Aviral Kumar Tiwari

Abstract

The study examines the effects of market conditions, volatility and liquidity shocks on the arbitrage profits during pre‐COVID and COVID periods. The study uses a conditional quantile regression and finds no significant difference in the impact of market conditions on the arbitrage profits during pre‐COVID and COVID crisis periods. The increase in volatility combined with low liquidity during the COVID period makes arbitrage non‐viable. However, the decline in volatility during the COVID period encourages investors to initiate arbitrage. The results are useful to fund managers and market analysts to develop suitable trading strategies and stock market regulators to take necessary steps to improve price discovery mechanisms and market efficiency.

Suggested Citation

  • VDMV Lakshmi & Garima Sisodia & Anto Joseph & Aviral Kumar Tiwari, 2024. "The conditional impact of market conditions, volatility and liquidity shocks on the arbitrage opportunities during pre‐COVID and COVID periods," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3007-3022, July.
    • Handle: RePEc:wly:ijfiec:v:29:y:2024:i:3:p:3007-3022
    DOI: 10.1002/ijfe.2818
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