Abstract
| Original language | English |
|---|---|
| Publication date | 2020 |
| Number of pages | 44 |
| Publication status | Published - 2020 |
| Event | The 80th Annual Meeting of American Finance Association. AFA 2020 - San Diego, United States Duration: 3 Jan 2020 → 5 Jan 2020 Conference number: 80 https://afajof.org/annual-meeting/ |
Conference
| Conference | The 80th Annual Meeting of American Finance Association. AFA 2020 |
|---|---|
| Number | 80 |
| Country | United States |
| City | San Diego |
| Period | 03/01/2020 → 05/01/2020 |
| Internet address |
Keywords
- Limits to arbitrage
- Liquidity
- Wealth e⁄ffects
- Strategic trading
- Endogenous risk
Cite this
}
Financially Constrained Strategic Arbitrage. / Malkhozov, Aytek; Venter, Gyuri.
2020. Paper presented at The 80th Annual Meeting of American Finance Association. AFA 2020, San Diego, United States.Research output: Contribution to conference › Paper › Research › peer-review
TY - CONF
T1 - Financially Constrained Strategic Arbitrage
AU - Malkhozov, Aytek
AU - Venter, Gyuri
PY - 2020
Y1 - 2020
N2 - We develop an equilibrium model of strategic trading under financial constraints. Investors have access to a fundamentally riskless arbitrage opportunity, but may be forced to re-sell if their capital does not fully cover their losses. Investors internalize both their price impact and the e⁄ffect of price movements on the constraints of all market participants, giving rise to a strategic motive for the less exposed investors to induce re-sales of more exposed ones. Ex ante, the presence of predatory risk leads to lower investment by all traders. We show the implications of strategic trading on price dynamics, returns characteristics, and leverage cross-section and dynamics.
AB - We develop an equilibrium model of strategic trading under financial constraints. Investors have access to a fundamentally riskless arbitrage opportunity, but may be forced to re-sell if their capital does not fully cover their losses. Investors internalize both their price impact and the e⁄ffect of price movements on the constraints of all market participants, giving rise to a strategic motive for the less exposed investors to induce re-sales of more exposed ones. Ex ante, the presence of predatory risk leads to lower investment by all traders. We show the implications of strategic trading on price dynamics, returns characteristics, and leverage cross-section and dynamics.
KW - Limits to arbitrage
KW - Liquidity
KW - Wealth e⁄ffects
KW - Strategic trading
KW - Endogenous risk
KW - Limits to arbitrage
KW - Liquidity
KW - Wealth e⁄ffects
KW - Strategic trading
KW - Endogenous risk
M3 - Paper
ER -