the buying and selling of foreign currencies, products, or financial securities between two or more markets in order to make an immediate profit by exploiting the differences in market prices quoted
Wiktionary Definition for: Arbitrage
the practice of quickly buying and selling foreign currencies in different markets in order to make a profit
the purchase of the stock of a future takeover target, with the expectation that the stock will be sold to the person executing the takeover at a higher price
any market activity where a commodity is bought and sold quickly for a profit which far exceeds the transaction cost
Although tax arbitrage is central to the literatures on tax capitalization, implicit taxes, and even capital structure, there is little empirical evidence of the extent to which firms actually engage in tax arbitrage. This paper provides some evidence on the topic by focusing on a simple and observable corporate arbitrage...
A diversified portfolio of risk arbitrage positions produces an abnormal return of 0.6–0.9% per month over the period from 1981 to 1996. It trace these profits to practical limits on risk arbitrage. In the model of risk arbitrage, arbitrageurs’ risk-bearing capacity is constrained by deal completion risk and the size...
The arbitrage-free range of values of the loss leg of an nth-to-default swap, and the arbitrage-free range of premium payments for such a swap, are derived for homogeneous baskets of arbitrary numbers of reference entities. Elementary arbitrage arguments are given which show that arbitrage opportunities exist if the prices lie...
Merger arbitrage is widely considered one of the principal areas of hedge fund investment. While the investment process of merger arbitrage is generally known, less information exists, at least in the practitioner community, as to academic research as to the basis for various merger activity as well as to the...
Although tax arbitrage is central to the literatures on tax capitalization, implicit taxes, and even capital structure, there is little empirical evidence of the extent to which firms actually engage in tax arbitrage. This paper provides some evidence on the topic by focusing on a simple and observable corporate arbitrage...
Arbitrage, in its purest form, is defined as the purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy. This results in immediate risk-free profit. Arbitrage is a very broad form of trading that encompasses many strategies; however, they all...
The term arbitrage denotes the simultaneous purchase and sale of identical assets in order to profit from a price difference between the two assets. The perfect case of arbitrage occurs when there is no risk involved and no capital is required. During merger and acquisition process, professional risk arbitragers purchase...
Using data on Japanese and US convertible bonds and underlying stocks, it analyzes the risk return characteristics of convertible arbitrage funds. The hypothesize that there are three primitive trading strategies that explain convertible arbitrage funds, returns, positive carry, volatility arbitrage, and credit arbitrage. They are referred as asset-based style factors....
Capital Market Risk Advisors CMRA has recently completed a detailed fundamental analysis of the merger arbitrage strategy. This was accomplished by creating the “theoretical” performance of a “pure” merger arbitrage strategy. The major conclusions were divided in two parts. Firstly, the majority of merger arbitrage managers achieved their returns by...
This paper has conducted an analysis of risk and return characteristics of fixed income arbitrage. It shows that a widely-used fixed income arbitrage strategy based on swap spreads generates sizable positive excess returns over an extended period. The findings shows, that most of these excess returns represent compensation for risk;...
Capital structure arbitrage strategies currently are the fastest growing sector in the hedge fund market and in proprietary trading departments in large banks. The objective of the thesis is the theoretical and practical background of capital structure arbitrage and hedging strategies, and the empirical evidence of key relationships applying these...
NEW YORK -- Bear, Stearns & Co. Inc. today announced that it recently launched The Bear Stearns Risk Arbitrage Cash Deal Index (Bloomberg: BSEICASH <Index>)--a new way to gain exposure to risk arbitrage deals in the US. The index, created by the Bear Stearns Equity Linked Strategy Team, is composed...
To the casual observer, the fundamental sources of leverage - technology, best practices, and scale -- that were behind the growth of IT outsourcing are now driving the pace of BPO outsourcing. However, a deeper look reveals that the primary driver is the combination of labor arbitrage with these leverage...
Risk arbitrage is one of several styles of hedge fund investing that constitutes the event driven strategy. Event driven investing is a strategy that seeks to profit from special situations or opportunities to capitalize on price fluctuations or imbalances. It is generally equity-oriented investing designed to capture share price movement...
This article builds on an important and insightful recent model of arbitrage by professional traders who need but lack wealth of their own to trade Professional arbitrageurs must convince wealthy but uninformed investors to entrust them with investment capital in order to exploit mispricing and push the market back toward...
After a company announces intent to acquire another, the price of the target company's stock predictably goes up, although usually not to the full offering price. Instead, because of the risk of the deal not closing on time or at all, the target company's stock will sell at a discount...
This paper analyses the issue of parallel trade arbitrage for products protected by intellectual property rights. Many countries have traditionally allowed owners of intellectual property rights to prohibit arbitrage in the face of international price discrimination. In a well-known paper Malueg and Schwartz (1994) showed that this policy decreases social...
The majority of asset-management intermediaries (e.g., mutual funds, hedge funds) are structured on an open-end basis, even though it appears that the open-end form can be a serious impediment to arbitrage. This paper argues that the equilibrium degree of open ending in an economy can be excessive from the point...
This study by Morgan Stanley examines the pressures of currency realignment been aggravated by the IT-enabled global labor arbitrage, as production and employment shift from high-cost to low-cost destinations, leading to trade frictions. The paper reveals certain interesting fact such as E-based connectivity is the new mega-trend behind the global...
Hewitt Associates has extended its European consultancy business with the purchase of leading French player Finance Arbitrage for an undisclosed sum. Hewitt Associates has extended its European consultancy business with the purchase of leading French player Finance Arbitrage for an undisclosed sum.
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