ADR arbitrage

[goldenbear]

I apologize in advance if this subject is covered elsewhere, but I'm interested in determining whether there are opportunities in ADR arbitrage, particularly whether it is possible for smaller investors to gain. Any examples of spreadsheets for reviewing live data would also be appreciated.

 

[Jack o'Clubs]

Very, very difficult. The big firms have hugely sophisticated quant models to arb ADRs and as a private punter you have no chance of getting an edge, IMO.

 

[grantx]

GB,

I'm guessing this is what an ADR arbitarge would involve: opening dollar denominated account (and assuming currency risk), opening long/short position (2 x commissions and charges), closing long/short position (another 2 x comm's/charges). Is the arbitrage opportunity sufficently profitable to account for these?

If you see an arbitrage, it's already been taken or is a pricing error. As Jack says, it not for the likes of us mere mortals.

Grant.


Grant.

 

[goldenbear]

Hi Grant and JoC,

Thanks for your feedback. I'd like set up a spreadsheet monitoring Mexican ADRs against the underlying stock. Maybe I'm chasing windmills, but I'd like to finish what I've started in terms of researching these spreads, particularly in Mexico where, according to some commentators, spreads are wider then other markets. At a minimum, I'll improve my otherwise pedestrian spreadsheet skills.

If anyone could point me to an example of such a spreadsheet, I would appreciate it.

Many thanks,

Goldenbear

 

[grantx]

GB,

What price feed will you be using? All you need to do is create dde links from the feed into Excel. I think you'll also need to monitor GBP/USD for converting p/l into sterling terms.

Grant.

 

[goldenbear]

Sorry Grantx, I've been in the states for a spell, and apologize for the late reply. I don't have a feed yet, but I'm flexible and thinking of subscribing for whatever is cheapest but reliable. Many thanks, GB

GB,

What price feed will you be using? All you need to do is create dde links from the feed into Excel. I think you'll also need to monitor GBP/USD for converting p/l into sterling terms.

Grant.

 

[grantx]

GB,

"in the States for a spell". OK for some.

Cheap and reliable feeds? That's a difficult one. I would suggest there isn't that much which seperates the cheaper feeds in terms of reliability. If I had to put a figure on it, I would guess 75-80% re reliability/collecting every tick. Personally, when your own hard-earned cash is on the the line, this is way too low.

I'm looking at CQG at the moment. The cost is £400 - £500 per month (I'm currently paying around £70 per month for my cheaper feed)but this cost equates to only 2 - 2 1/2 ticks per day. Perhaps the question should be , can you afford not to go for a more expensive system?

Grant.

 

[babytrader]

Hey guys.... cheap feeds will criple you. CQG isnt great - used to trader bonds and use their data and it was poor. Now an equity trader and use bloomberg which is alright.
When you say Adr arb who are refering... holding spreads or actually converting stock ?
Very very different games and yes you guys are right... the big dogs own this universe with systems running in the millions trying to gain 100th of a second. Difficult game to play without deep pockets and investment and impossible if you dont have fast automated systems.

 

[mephistos]

Hey guys.... cheap feeds will criple you. CQG isnt great - used to trader bonds and use their data and it was poor. Now an equity trader and use bloomberg which is alright.
When you say Adr arb who are refering... holding spreads or actually converting stock ?
Very very different games and yes you guys are right... the big dogs own this universe with systems running in the millions trying to gain 100th of a second. Difficult game to play without deep pockets and investment and impossible if you dont have fast automated systems.

Hello,

I'm interested in this question too.
I've seen many arbitrage opportunities around not being immediately taken by big firms.
If you search you'll find foreign companies with nice spreads on the OTC markets compared to their home exchanges. Of course there you may found poor liquidity (there really aren't free lunches I guess!), and that's a risk you have to take, but you might found good trades and profits as well.
On the OTC markets some foreign companies have their actual common shares trading, so you can just buy the same shares and sell it somewhere else, or vice-versa; without caring about spread strategy (that's really something I'm not akin with).
On the other hand I'm not used with ADR's arbitrage, as most do it through spread strategies and I'm not willing to do that... But I noticed you've mentioned something about converting them into common shares. How does it work? Is it easy and quickly done?:?:

http://people.hbs.edu/mdesai/IFM05/AmaryOttoni.pdf

http://www.bowne.com/securitiesconnect/details.asp?storyID=1876

Good trades everyone.

 

[anley]

As a rule of thumb if you see an arb opportunity it's not one, or at least won't be one by the time you try to put a trade on. As others have said you're up against companies investing millions a year in research and programs to arb so there's no real hope for anyone at home with a £1000 setup.