This paper shows how arbitrage activity contributes to the convergence of liquidity across markets. Based on simple … arbitrage arguments, I show how arbitrageurs' market and limit orders create co-movement across markets of bid prices, ask … prices, and bid-ask spreads. Empirically, I document how the intensity of arbitrage activity increases the co-movement of …

Real-world arbitrage often involves a limited number of large financial intermediaries (e.g. dealers, hedge funds) with … price impact. I study a multi-period model of imperfectly competitive arbitrage, in which supply shocks generate price di …-varying. The model also off ers new testable predictions, in particular that the market structure is a driver of arbitrage speed …

Focusing on capital asset returns governed by a factor structure, the Arbitrage Pricing Theory (APT) is a one …-period model, in which preclusion of arbitrage over static portfolios of these assets leads to a linear relation between the … expected return and its covariance with the factors. The APT, however, does not preclude arbitrage over dynamic portfolios …

-lived correlated assets we examine the impact of alternative types of arbitrage-seeking algorithms. These arbitrage robot traders vary … in their latency and whether they make or take market liquidity. All arbitrage robot traders we examine generate greater … conformity to the law-of-one-price across the twin markets. However, only the liquidity providing arbitrage robot trader moves …

We propose a new approach to modeling informed order flows. Our approach generalizes arbitrage pricing to incorporate …

We use arbitrage activity in equity, fixed income, and foreign exchange markets to characterize the frictions and … constraints facing intermediaries. The average pairwise correlation between the twenty-nine arbitrage spreads that we study is 22 … sets all prices. We show that at least two types of segmentation drive arbitrage dynamics. First, funding is segmented …