On the NYSE, it’s priced at $1.05, and on the London Stock Exchange, it’s $1.10. It’s when this price difference exists that pure arbitrage becomes possible.įor example, imagine a large multinational company lists its stock on the New York Stock Exchange (NYSE) and London Stock Exchange. Whenever an asset is traded in multiple markets, it’s possible prices will temporarily fall out of sync. Many investments can be bought and sold in several markets. As such, the terms “arbitrage” and “pure arbitrage” are often used interchangeably. Pure arbitrage refers to the investment strategy above, in which an investor simultaneously buys and sells a security in different markets to take advantage of differences in price. Global macro is another investment strategy related to arbitrage, but it’s considered a different approach because it refers to investing in economic changes between countries.Ĭheck out our video on arbitrage below, and subscribe to our YouTube channel for more explainer content! There are several types of arbitrage, including pure arbitrage, merger arbitrage, and convertible arbitrage. Arbitrage is commonly leveraged by hedge funds and other sophisticated investors. While price differences are typically small and short-lived, the returns can be impressive when multiplied by a large volume. DOWNLOAD NOWĪrbitrage is an investment strategy in which an investor simultaneously buys and sells an asset in different markets to take advantage of a price difference and generate a profit. Here's an overview of arbitrage, including a look at three types you should know: pure arbitrage, merger arbitrage, and convertible arbitrage.įree E-Book: A Manager's Guide to Finance & AccountingĪccess your free e-book today. To effectively include arbitrage in your alternative investment strategy, it’s critical to understand the nuances and risks involved. These strategies often differ from the typical “buy and hold” tactics leveraged by most long-term stock and bond investors-and are usually more complicated.Īrbitrage is one alternative investment strategy that can prove exceptionally profitable when leveraged by a sophisticated investor. This book is therefore highly recommended for those looking to master the subject matter.In the world of alternative investments, there are several strategies and tactics you can employ. "Andy Pole has extensive practical experience of statistical arbitrage trading together with an ability to explain the underlying theory with great clarity. Christian Thygesen, Managing Director, Investcorp International Inc. Andy Pole has managed to turn black into, if not white, then a lighter shade of gray." Statistical arbitrage remains for many outsiders, including hedge fund professionals, a 'black box' strategy. The book provides an excellent balance conceptualizing the mathematics of short-term technical trading strategies with more practical discussions on the recent performance of such strategies. "Statistical Arbitrage offers a rare glimpse of insights into the otherwise opaque world of short-term trading strategies. Susan Kaderabek, Portfolio Manager, Franklin Street Partners ![]() ![]() Using real-life examples and accounts from his decades of experience, this book chronicles the rise in popularity of stat arb, explains its recent struggle for profitability, as well as provides novices with insights into the art and science of building their own models." "Andy Pole delivers a readable and comprehensive history of statistical arbitrage. Judith Posnikoff, PhD, Managing Director Pacific Alternative Asset Management Company Even we old-timers will learn something." His detailed focus on and clever examples of the underlying drivers of stat arb are an invaluable resource for anyone investigating the strategy for the first time. "What a find! Andy Pole provides a remarkable look at the history and evolution of what is frequently considered to be the most opaque of the myriad hedge fund strategies. Nick Macleod, Head of Quantitative Research and Risk Management Ermitage Asset Management Jersey Limited Anyone with an interest-professional or otherwise-in what goes on inside the black boxes of mathematical trading strategies will enjoy the book." "In this lucid, intelligent, and highly readable book, Andrew Pole presents the insights of an experienced and successful exponent of statistical arbitrage, with an uncommon mixture of flair, accessibility, and academic precision.
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