In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost. Wikipedia.
In our GCC markets we have some arbitrage opportunities in some stocks with dual listings. Some might have a marginal profit opportunity; others might almost make you double your investment. Global Investment House, which is listed both in the KSE and the DFM is traded at KD0.058 and KD0.103 respectively, indicating an arbitrage opportunity of almost 77% whereby you can buy Global stock in the KSE and sell it in the DFM. GFH, which is listed in the KSE, DFM and BSE can also provide you with a risk-free return. The difference between GFH’s price in KSE (KD0.039) and DFM (KD 0.040) is 2%, however, in the BSE it’s priced at KD0.108, thus potentially tripling your money.
The graph below shows the mispricing in Global’s stock in the KSE and DFM.
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Loading ...Tags: Arbitrage, BSE, DFM, Global Investment House, Gulf Finance House, KSE
el moshkila mako tadawol 3alihaa ehnaak !! check tamweel 5aleej its the same thing but ma3aliha 7araaka ehnak
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I think the article is missing one critical point..
If this opportunity exists why haven’t people taken advantage of it??
With all due respect I think you are a very smart and informed person however I don’t think that it is possible that you are the only person that has caught this discrepancy in pricing..
Arbitrage opportunities rarely exist and when they do they exist for a very short time..
To conclude.. whats the catch?? (is e7mood’s point the main reason?)
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No Liquidity = No Way of Buying –> No Arbitrage
maybe you can do few shares, but nothing more… not worth the hassle
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Sal Reply:
June 27th, 2010 at 2:24 pm
And your comment is based on assumptions?
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Bo6air Reply:
June 28th, 2010 at 12:07 pm
Dear Sal
our friends Saud & Abdulmohsen explain what am saying in more details that I can
ve a great day brother
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What’s the daily turn-over in DFM?
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True, liquidity is a problem there, but if you are not trading large quantities you CAN do arbitrage. Although both Global and GFH trade on low volumes, but they do trade; so if your lucky you won’t be caught in the bad days of no volume at all
Today GFH traded on all exchanges and last time Global traded was a week ago in the DFM.
I’m sure I’m not the only one who noticed the price mismatch, but you should keep in mind that investing in the KSE isn’t accessible to international investors, to many the traded volume isn’t worth the hassle and the risk of liquidity is apparent hence making the arbitrage opportunity exists for longer than usual.
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The real hassle is in transferring your ownership from kse to dfm… This doesn’t happen overnight unfortunately… Add to that the very limited liquidity then it wouldn’t be something worthwhile.
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Saud Reply:
June 28th, 2010 at 12:31 am
It takes approximately 4 days to do so
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