{"title":"Limits to arbitrage and the term structure of CIP violations","authors":"Paul Wohlfarth , Xiaohong Chen","doi":"10.1016/j.intfin.2024.102031","DOIUrl":null,"url":null,"abstract":"<div><p>We investigate the existence of a term structure in cross-currency swap bases, a measure for CIP violations, to identify limits to arbitrage in foreign exchange swap markets. Based on estimates from a multivariate model of USD cross-currency bases for G10 currencies that caters for a number of known intermediary constraints as well as linkages between currency pairs our findings highlight the importance of two-tiered arbitrage, risk aversion, regulation, and policy in explaining this term structure of CIP violations.</p></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"95 ","pages":"Article 102031"},"PeriodicalIF":5.4000,"publicationDate":"2024-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of International Financial Markets Institutions & Money","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1042443124000970","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We investigate the existence of a term structure in cross-currency swap bases, a measure for CIP violations, to identify limits to arbitrage in foreign exchange swap markets. Based on estimates from a multivariate model of USD cross-currency bases for G10 currencies that caters for a number of known intermediary constraints as well as linkages between currency pairs our findings highlight the importance of two-tiered arbitrage, risk aversion, regulation, and policy in explaining this term structure of CIP violations.
期刊介绍：
International trade, financing and investments, and the related cash and credit transactions, have grown at an extremely rapid pace in recent years. The international monetary system has continued to evolve to accommodate the need for foreign-currency denominated transactions and in the process has provided opportunities for its ongoing observation and study. The purpose of the Journal of International Financial Markets, Institutions & Money is to publish rigorous, original articles dealing with the international aspects of financial markets, institutions and money. Theoretical/conceptual and empirical papers providing meaningful insights into the subject areas will be considered. The following topic areas, although not exhaustive, are representative of the coverage in this Journal. • International financial markets • International securities markets • Foreign exchange markets • Eurocurrency markets • International syndications • Term structures of Eurocurrency rates • Determination of exchange rates • Information, speculation and parity • Forward rates and swaps • International payment mechanisms • International commercial banking; • International investment banking • Central bank intervention • International monetary systems • Balance of payments.
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