Arbitration strategies are a topic that has been studied in detail, but which is at the same time broad enough to find new interesting aspects for analysis. It is especially interesting to consider arbitration in the current conditions of the Russian currency market, which is currently in a transition period. Changes in the Russian market are related to the so-called "new reality" of low oil prices and the "free-floating" ruble. Under these conditions, arbitration strategies could become one of the ways to make a profit in a less risky form. As will be discussed in chapter 1.1 of this paper, it is difficult to imagine an ideal arbitration without any risk. However, this study has attempted to describe a method of generating such risk-free profits in a real market environment.
The essence of the arbitration discussed in this paper is to deviate from the principle of covered interest parity, which, in theory, should not be able to derive a risk-free profit. Arbitration of this type has been widely studied in several studies published in economic journals, by international organizations such as the IMF or the Bank for International Settlements, and by central banks (the US Federal Reserve, the ECB, the Bank of Norway, etc.). The results of these studies were used in preparation for this work as a basis for covering the theoretical part of the study and the basis for analyzing the situation in the Russian foreign exchange market.
At the same time, although the topic of forward arbitration based on the principle of covered interest parity has been widely represented in the research since the late 1980s, the relevance of this work is still primarily due to the lack of such works considering the Russian market. Also, many studies have already assessed the peculiarities of arbitrage transactions during crisis periods, but these crises were not related to the transition to a floating rate. In this paper, one of the tasks was to find differences in arbitration profits before and after the change of the exchange rate policy mechanism of the Central Bank of Russia in 2014. This is another innovation that can be attributed to this study.
The purpose of the work was to search for arbitration profits in the Russian currency market from 2005 to 2016. However, in the course of the research, a new goal appeared - to prove or disprove the hypothesis that the arbitrage profit in the Russian foreign exchange market has increased since 2014. Another objective of the study was to put forward a hypothesis on what factors could influence the growth of arbitration profits starting from 2014.
The methodology of this work includes the processing of time series of quotes of financial instruments necessary for the study, as well as a comparative analysis of the results of the search for arbitration profits. Also, a regression analysis was used to analyze the factors affecting the amount of arbitrage profits.
The object of the research is the amount of arbitrage profit from operations with forward dollar/ruble on the principle of covered interest parity. The subject of the research is the change in the size of the arbitrage profit on the Russian currency market in the conditions of the oil price drop and transition to the floating ruble exchange rate.
The present study consists of two sections: theoretical and practical. The theoretical section contains three chapters explaining the essence and types of arbitration, the principle of the covered interest rate parity discussed in this paper, as well as a detailed review of the studies that were used to write this paper. The second section describes the results of the search for arbitration in the Russian currency market. In particular, the data and the method of calculating arbitration profits are described in detail. Besides, since the focus of this paper is on the difference between the profit from arbitrage transactions before and after 2014, the 2014 crisis period is described in detail. The second section also describes the results of the regression analysis of the impact of some factors on the size of arbitration profits in the Russian market.
It is a set of factors that are assessed in this paper using a regression analysis that determined the time range of data sampling. In particular, it was not possible to compare the volatile crisis period of 2008-2009 with the nonvolatile years, since data on some factors for 2008-2009 were not available. In particular, the spread of MOSPRIME-ROISfix, which was one of the explanatory variables in the regression, could only be calculated in 2011, because it was this year that the ROISfix rate began to be published on the website of the Central Bank of Russia. In this regard, the 2014-2016 volatile period and the 2011-2013 less volatile period were compared in this study.