Are there arbitrage gaps in the UK gilts strips market?

Seth Armitage, S Chakravarty, L Hodgkinson, J Wells

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Evidence in financial markets of an opportunity for pure arbitrage, and therefore a violation of the law of one price, is considered an anomaly to be noted. This paper reports an apparent violation of the law of one price between UK government gilts and their separately traded principal and coupon strips over a sample period of nearly 14 years. There are persistent price differences, and hence opportunities for arbitrage, after allowance for the bid-ask spread; the strips package tends to be overpriced in relation to the corresponding gilt. The price differences may, in part, be due to a lack of liquidity and stale prices in the strips market.
Original languageEnglish
Pages (from-to)3080–3090
JournalJournal of Banking and Finance
Volume36
Issue number11
Early online date7 Jul 2012
DOIs
Publication statusPublished - Nov 2012

Keywords / Materials (for Non-textual outputs)

  • Gilt
  • Arbitrage
  • Anomalies
  • Law of one price
  • Market microstructure

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