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International High-Frequency Arbitrage for Cross-Listed Stocks

Author

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  • Poutré, Cédric

    (Université de Montréal)

  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Yergeau, Gabriel

    (HEC Montreal, Canada Research Chair in Risk Management)

Abstract

We explore mean-reverting arbitrage activities for international cross-listed stocks and develop a methodology to study the effect of information latency in high-frequency trading. The high-frequency strategy is a hybrid between triangular arbitrage and pairs trading. The strategy can be generalized to multiple cross-listed stocks environments without additional restrictions. Market frictions such as trade costs, inventory control, and arbitrage risks are considered. We test the strategy with cross-listed stocks involving three exchanges in Canada and the United States in 2019. The annual net profit with the limit order strategy is around US$6 million. International latency arbitrage with market orders is not profitable with our data.

Suggested Citation

  • Poutré, Cédric & Dionne, Georges & Yergeau, Gabriel, 2021. "International High-Frequency Arbitrage for Cross-Listed Stocks," Working Papers 21-4, HEC Montreal, Canada Research Chair in Risk Management, revised 15 Mar 2022.
    • Handle: RePEc:ris:crcrmw:2021_004
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    More about this item

    Keywords

    Latency arbitrage; high-frequency trading; cross-listed stocks; mean-reverting arbitrage; international arbitrage; supervised machine learning;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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