index arbitrage


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Index arbitrage

An investment trading strategy that exploits divergences between actual and theoretical futures prices. An example is the simultaneous buying (selling) of stock index futures (i.e., S&P 500) while selling (buying) the underlying stocks of that index, capturing as profit the temporarily inflated basis between these two baskets. Often, the point at which profitability exists is expressed at the block call as the number of points the future must be over or under the underlying basket for an arbitrage opportunity to exist. See: Program trading.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Index Arbitrage

A form of arbitrage in which an investor takes advantage of discrepancies in price between a stock index and a futures contract on that index. Index arbitrage occurs when an arbitrageur takes one position on a stock index (or on the individual stocks underlying the index) while taking an equal but opposite position on a futures contract on the index. He/she is then able to profit from the difference in the price between the two.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

index arbitrage

An investment strategy that takes advantage of the price discrepancies between an asset or group of assets and an index futures contract on the asset. For example, a money manager might attempt to earn a profit for shareholders by selling an overpriced stock index futures index and buying the underlying stock. See also stock-index arbitrage.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
In his earlier role as a managing director at Nomura Securities, he co-managed a proprietary index arbitrage portfolio consisting of trading earning and funding spreads using equity positions, ETF's and index futures and options.
He previously worked for two years at OFI AM where he managed an index arbitrage fund.
Gifford's areas of expertise include ETFs, derivatives and index arbitrage. Prior to joining, he worked as a senior trader on the equity desk at Wolverine Trading for 11 years.
Or, at least it was for Jared Dillian, a Lehman Brothers index arbitrage trader from 2001 to 2008.
Rising index arbitrage activity in Asia will add liquidity to the region's equity markets and create a healthy environment for the cross-listing of indexes between bourses, market participants say.
Previous studies find that semi-strong market efficiency is violated due to index arbitrage. Index funds would like to reduce their purchase price by rebalancing before the effective date, such as the night session following the announcement date.
The significant, negative relation between the D_SP500 and the RSI in the NYSE indicates that the reduced information asymmetry effect (Denis et al., 2003), dominates the liquidity effect (Hegde and McDermott, 2003) and the index arbitrage effect (Jegadeesh and Subrahmanyam, 1993).
This category refers to funds that bet on relative price movements utilizing strategies such as long/short equity, stock index arbitrage, convertible bond arbitrage, and fixed income arbitrage.
However, share price index arbitrage involves transactions in both the futures and share markets, and thus account must be taken of the taxes and transaction costs in the two markets.
Other topics Mayer provides insights into are the futures and options markets along with index arbitrage, and the sophisticated details revealed on the manipulation of them.
Perhaps the answer to that question can be summed up in two words, index arbitrage. The development of hedging strategies employing futures and options revolutionized portfolio strategy for many institutional investors.
Very few of the survey respondents considered themselves "very familiar" with program trading or index arbitrage. Although 70 percent of the respondents considered themselves "somewhat familiar" with program trading, fewer than half that number considered themselves even somewhat familiar with index arbitrage.