Arbitrage ensures that covered interest parity holds. The condition is central to price foreign exchange forwards and … interbank lending rates, and reflects the efficient functioning of markets. Normally, deviations from arbitrage, if any, last … seconds and reach a few basis points. After the Lehman bankruptcy, instead, arbitrage profits were large, persisted for months …

arbitrage crashes and failure of systemically important intermediaries during the global financial crisis. Intermediaries pledge … productive capital as repo collateral to fund the margin for their arbitrage positions. A tiny drop in the market liquidity of … movements and losses. This further reduces the collateral value of arbitrage portfolios and triggers more fire-sales in both …

Efficiency in the capital markets requires that capital flows are sufficient to arbitrage anomalies away. We examine … performance of this strategy. When these flows are high, quant funds are able to implement arbitrage strategies more effectively …-sectional equity market efficiency varies across time with the availability of arbitrage capital …