Arbitrage in equity markets
Arbitrage in equity markets

Summary/Abstract: This paper tackles the problem of equity arbitrage on London Stock Exchange in years 1985–2012. The relationship between spot and future prices (the mispricing) has been analysed on the basis of FTSE100 index. Recently, the spread between spot prices and present value of the future prices has increased. This increase in mispricing can be perceived as evidence that could lead to an arbitrage opportunity. At the same time one could argue that none such opportunity exists as the mispricing merely reflects the change in the risk free rate proxy used by market participants. Furthermore the paper identifies the impact of the day-ofthe- week effect on mispricing.

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