How efficient are FX markets? Empirical evidence of arbitrage opportunities using high-frequency data

The presence of arbitrage opportunities, allowing for market imperfections such as trading costs, may be considered as indication of market inefficiencies. Using high frequency data the paper presents empirical evidence on the efficiency of the FX market. A total of 720 instruments are examined and analysed in the paper and the results obtained indicate significant deviations from market efficiency. However, the presence of arbitrage opportunities should not be interpreted as market inefficiency since, as the analysis of the results indicates, the exploitation of such opportunities involve a degree of risk which can adversely effect realized returns.