Arbitrage as a new normal in contemporary financial markets?

Abstract

The global financial system is constantly changing, rapidly reacting on the external changes. These changes include evolving macroeconomic policy tools, creation of new regulations in financial markets (affecting both banking institutions, financial markets’ benchmarks, etc.), imposition of legal restrictions of dealing with certain types of financial institutors on the basis of decisions of particular governments, and other developments. All these create grounds for appearance of fragmentation between financial markets and jurisdictions, which, in turn, creates a phenomenon of arbitrage. In the paper certain sources of such price disparities is analysed and illustrated. It becomes evident that the arbitrage might become a new normal for the contemporary financial markets, and that this phenomenon seems to be overlooked and undervalued, while its consequences might be large and long-lasting.