Morningstar's "long-short" mutual-fund category includes market-neutral and absolute-return funds, which are designed to generate returns in any market environment, and arbitrage funds, which try to exploit market inefficiencies.
Problems occur with corporate bond ETFs in a fast-moving market because the arbitrage mechanism starts breaking down.
Described in typical industry gobbledygook as a "multistrategy, market-neutral arbitrage" fund, SRI eked out a net 0.07% return its first six months.
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This all presents a classic case of market-theory arbitrage, says Florian Mueller, an expert in IP litigation and the person behind the FOSS patents blog.
On Sunday, a statement issued by the Frankfurt-based lender called the latest charges "regrettable" and said it "sincerely regrets the impact on the Kospi market of an index arbitrage position unwind involving a small number of Deutsche Bank Group employees".
Now it's become an obsession of the financial industry, to serve the needs of high-speed automated trading, where computers arbitrage based on knowing the market news an extra millisecond in advance.
Arbitrage insures that, to the market as a whole, all maturities of Treasury securities are equally attractive as investments.
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Alan, the great piano tuner, in his infinite but indirect wisdom, kept money market rates so low that the banks could arbitrage money and dig themselves out of their management-made mud slides.
"The new guidelines are aimed at further tightening the oversight of the bond-issuance market and specifically cracking down on speculation and arbitrage between some investors and underwriters, " said Yang Weixue, a senior fixed-income analyst at Lianxun Securities.
In a liquid market, corporate bond ETF market prices are held close to their NAVs by an arbitrage mechanism.
But my best guess is that someone on that risk free arbitrage desk moved from risk free pure arbitrage into very definitely not risk free time arbitrage, or speculation as we should call it, then the market moved against his bet.
Some investors use ETFs as a quick way of expressing their overall view on the market, while high-frequency traders use the funds as part of their complex arbitrage strategies.
It has long been against the rules for banks to engage in arbitrage by borrowing at the discount rate and lending in the Fed Funds market at a higher rate.
This risk-free arbitrage trade locked in a small profit for the institutional investor and kept the SuperUnit market price in line with its underlying value.
Nick Leeson told everyone he was doing pure arbitrage: in his case between futures contracts on the Nikkei (the Japanese stock market index) and the Nikkei itself.
However, he also tolerated a legal parallel market that kept the country supplied with hard currency at a higher rate (providing countless opportunities for arbitrage).
But in the world of class actions, the arbitrage between the price of a desperate lawyer loaded down with student loans and his supposed market value can make for a hugely profitable opportunity.
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