Deviations from triangular arbitrage parity in foreign exchange and bitcoin markets
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Date
2018
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Abstract
This paper applies new econometric tools to monitor and detect so-called "financial market dislocations",
defined as periods in which substantial deviations from arbitrage parities take place. In particular,
we focus on deviations from the triangular arbitrage parity for exchange rate triplets. Due to
increasing media attention towards mispricing in the market for cryptocurrencies, we include the cryptocurrency Bitcoin in addition to fiat currencies. We do not find evidence for substantial deviations
from the triangular arbitrage parity when only traditional fiat currencies are concerned. However, we
document significant deviations from triangular arbitrage parities in the newer markets for Bitcoin.
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Keywords
triangular arbitrage parity, monitoring, cointegration, cryptocurrencies, foreign exchange markets