We develop a model of financially constrained arbitrage, and use it to study the dynamics of arbitrage capital … the dynamics of arbitrage activity are self-correcting: following a shock that depletes arbitrage capital, profitability … trades, although arbitrageurs cut their positions in these trades the least. When arbitrage capital is more mobile across …

High frequency arbitrage opportunities sometimes arise when the price of one asset follows, with a lag, changes in the … suppliers to the risk of being picked off by arbitrageurs. Hence, more frequent toxic arbitrage opportunities and a faster … triangular arbitrage opportunities in the FX market. In our sample, a 1% increase in the likelihood that a toxic arbitrage …

This paper derives arbitrage trading strategies taking into account the fact that the actions of arbitrageurs impact … prices. This avoids the difficulty of having to rely on exogenous position limits to prevent infinite arbitrage profits. When … spite of arbitrage. Financial constraints are also responsible for periods of excessively volatile prices and for the time …