trading strategies for hedging speculation and arbitrage

journal article

Arbitrage, Hedging, and Financial Innovation

The Review of Financial Studies

Published Aside: Oxford University University Press

The Review of Financial Studies

https://www. jstor .org/stable/2645954

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Abstract

I study the costs and benefits of introducing a new security in a canonic framework where uninformed traders with hedge inevitably interact with risk-averse informed traders. Opening a unprecedented market May make everybody worse off, even when the new certificate is listed in equilibrium. This article emphasizes cross-market links 'tween hedging and speculative demands: risk-averse arbitrageurs can use the new market to hedge their positions in the preexisting security, which can affect liquidity in the old securities industry. More generally, the availability of such hedge opportunities volition influence the strategies to which traders will direct resources.

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Tables of table of contents for recent issues of The Review of Financial Studies are available at http://rfs.oupjournals.org/contents-past-date.0.shtml . Authorized users may be able to access the high text articles at this land site. The Review of Financial Studies is a major forum for the promotion and wide dispersal of significant new inquiry in fiscal economics. As reflected by its broadly supported newspaper column board, the Review balances theoretical and empirical contributions. The primary criteria for publishing a paper are its quality and importance to the field of finance, without undue regard to its technical difficultness. Finance is interpreted broadly to admit the user interface 'tween finance and economics.

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