Arbitrage Strategies on Emerging Markets and Their Impact on Local Economies

Emerging markets are essential elements of the global economic system with dynamic growth potential and attractive arbitrage opportunities for both researchers and investors. In my thesis, I explore the dynamics of price impact and the impact of arbitrage on social welfare in the emerging markets of Latin America, focusing on Brazil and Mexico, by applying the framework developed by Dávila et al. (2022). Previous research has primarily estimated the social value of arbitrage in developed markets. This study reveals significant deviations from Covered Interest Parity (CIP) with notable differences between the Brazilian and Mexican markets, as well as between emerging and developed markets. Specifically, the findings indicate that CIP deviations in emerging markets are generally more volatile although exhibit lower volatility during global shocks due to a lower stage of economic integration.