An Examination of Cross-Market Arbitrage

Abstract

We examine cross-market arbitrage in U.S. equity markets. A crossed market occurs when the National Best Bid is greater than the National Best Offer. For calendar year 2018, on all National Market Securities, there are more than 1.8 million market crosses and $20.2 million in potential arbitrage profits. The mean market cross is for 1.7 cents and 562 shares and lasts 6.6 milliseconds. On a typical day, there are 7,286 crossed quotations. Our findings suggest that cross-market arbitrage in U.S. equities is limited and risky but may exist at times for high-speed traders.