scholarly journals THE MIRAGE OF TRIANGULAR ARBITRAGE IN THE SPOT FOREIGN EXCHANGE MARKET

2009 ◽  
Vol 12 (08) ◽  
pp. 1105-1123 ◽  
Author(s):  
DANIEL J. FENN ◽  
SAM D. HOWISON ◽  
MARK MCDONALD ◽  
STACY WILLIAMS ◽  
NEIL F. JOHNSON
Keyword(s):  
Market Efficiency ◽  
Foreign Exchange ◽  
High Frequency ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
Market Participants ◽  
Pricing Efficiency ◽  
Arbitrage Opportunities ◽  
Self Consistent

We investigate triangular arbitrage within the spot foreign exchange market using high-frequency executable prices. We show that triangular arbitrage opportunities do exist, but that most have short durations and small magnitudes. We find intra-day variations in the number and length of arbitrage opportunities, with larger numbers of opportunities with shorter mean durations occurring during more liquid hours. We demonstrate further that the number of arbitrage opportunities has decreased in recent years, implying a corresponding increase in pricing efficiency. Using trading simulations, we show that a trader would need to beat other market participants to an unfeasibly large proportion of arbitrage prices to profit from triangular arbitrage over a prolonged period of time. Our results suggest that the foreign exchange market is internally self-consistent and provide a limited verification of market efficiency.

Evolving Efficiency of Exchange Rate Movement: An Evidence from Indian Foreign Exchange Market

2019 ◽  
Vol 21 (4) ◽  
pp. 956-969 ◽  
Author(s):  
Sashikanta Khuntia ◽  
J. K. Pattanayak
Keyword(s):  
Exchange Rate ◽  
Market Efficiency ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Rate Regime ◽  
Time Varying ◽  
Exchange Market ◽  
Arbitrage Opportunities ◽  
Window Approach ◽  
Central Bank Interventions

This study empirically verifies the evolving and time-varying efficiency of Indian foreign exchange market using the framework of adaptive market hypothesis (AMH). Whether market efficiency is time varying or static, and if time varying, identification of possible events causing such time-varying efficiency are the two major agenda of this study. We employ a set of recent methods which are robust and possess stronger power properties. Moreover, we follow a fixed-length rolling window approach to explore time-varying nature of market efficiency and to avoid data-snooping bias. Our overall findings suggest that market efficiency is not an all-or-nothing condition; it varies over time. We also find that episodes of efficiency coincide with emergence of major events and market microstructure issues. Particularly, changes in exchange rate regime, financial turbulence, major central bank interventions and trade volume are the prominent causes for time-varying efficiency in INR–USD exchange rate. The evidence of swing between efficiency and inefficiency can prompt currency traders to exploit arbitrage opportunities that emerge with different market conditions.

Foreign exchange market efficiency and cointegration

1989 ◽  
Vol 29 (1) ◽  
pp. 63-68 ◽  
Author(s):  
Ronald MacDonald ◽  
Mark P. Taylor
Keyword(s):  
Market Efficiency ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Market
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