Potential Arbitrage Analysis
Based on the Fed’s Reduction on the SMCCF and the Future Monetary Policy
These authors contributed equally.
- 10.2991/assehr.k.211209.229How to use a DOI?
- SMCCF; FOMC; Hedge fund; Investment grade bonds; Real Estate
This article represents an analysis of the Fed’s recent reduction on Secondary Market Corporate Credit Facility(SMCCF) and the future monetary policies on The Federal Open Market Committee (FOMC). And we try to explore potential arbitrage opportunities according to the impact of these policies. Based on these events, we made a simple hedging strategy longing the ETF in the real estate industry and shorting the ETF of investment-grade bonds. As a result, we have gained profit in both positions. Moreover, we almost didn’t make a profit on the short side by the end of the transaction. Because the number of the holdings that the Fed started to sell was not too big, and the market needed time to respond to the policy change. At the end of this article, we conclude that the Fed’s recent monetary policies effectively influenced the real estate and bond markets, especially during the pandemic period. Therefore, Fed needs to consider potential influence when making decisions. Besides the credit tools such as SMCCF make a more accurate and fast adjustment to the currency market, which provides investors with many opportunities to build a potential portfolio when the Fed changes its use of them.
- © 2021 The Authors. Published by Atlantis Press International B.V.
- Open Access
- This is an open access article under the CC BY-NC license.
Cite this article
TY - CONF AU - Zihui Chen AU - Keyang Li AU - Minlan Tang PY - 2021 DA - 2021/12/15 TI - Potential Arbitrage Analysis BT - Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021) PB - Atlantis Press SP - 1409 EP - 1414 SN - 2352-5428 UR - https://doi.org/10.2991/assehr.k.211209.229 DO - 10.2991/assehr.k.211209.229 ID - Chen2021 ER -