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.
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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.
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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).
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