Cross-listed cross-currency assets and arbitrage with forwards and options Dilip K. Ghosh a,b, ⁎, Dipasri Ghosh c , Chandra Shekhar Bhatnagar d a The American University in Cairo, United States b Rutgers University, New Jersey, United States c California State University – Fullerton, United States d The University of the West Indies, United States article info abstract Article history: Received 30 December 2009 Accepted 30 December 2009 Available online 29 March 2010 This work attempts to integrate the twin-structure of arbitrage operations in both securities and currency markets. By looking into cross-listed and cross-currency stocks in several exchanges, it is found that arbitrage is indeed a viable option, since price differences of the same assets exist in a numéraire currency at the same instant of time. Taking advantage of such arbitrage opportunities, profit is made first in the assets trade, and then the initial profit is churned further in an iterative arbitrage process in the currency market where arbitrage is covered by forward and option contracts. © 2010 Elsevier Inc. All rights reserved. Keywords: Arbitrage Cross Listing Derivatives Forward Contracts Options Contracts Iterative Profit Global Finance Journal 21 (2010) 98–110 ⁎ Corresponding author. Department of Management/Finance, The American University in Cairo (New York Office), 420 Fifth Avenue, Third Floor, New York, NY 10018-2729, United States. Tel.: +1 856 424 2263, +212 730 8800; fax: +212 730 1600. E-mail addresses: dghosh4@msn.com, dghosh@aucegypt.edu (D.K. Ghosh). 1. Introduction International diversification and benefits thereof have already been examined in the academic literature and practiced in global markets by investors, corporate and individual, for over three decades. Traditional analyses, however, have concentrated on long-term overseas investments in markets for equity and fixed-income securities, and various conclusions have been presented often to extol global investment. Many issues such as barriers and limits thereof have been thrown into relief, and the analytical framework has gained currency continuously since the work of Grubel (1968). Solnik (1974) has unquestionably established the superiority of international investing in both unhedged and hedged situations over domestic investment. This insight along with the reality of further market integration and information availability has created a new environment in the global market place. 1044-0283/$ – see front matter © 2010 Elsevier Inc. All rights reserved. doi:10.1016/j.gfj.2010.03.001 Contents lists available at ScienceDirect Global Finance Journal journal homepage: www.elsevier.com/locate/gfj