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Erscheinungsjahr: 
2018
Schriftenreihe/Nr.: 
Staff Report No. 858
Verlag: 
Federal Reserve Bank of New York, New York, NY
Zusammenfassung: 
We argue that post-crisis bank regulation can explain large, persistent deviations from parity on basis trades requiring leverage. Documenting the financing cost and balance sheet impact on a broad array of basis trades for regulated institutions, we show that the implied return on equity on such trades is considerably lower under post-crisis regulation. In addition, although hedge funds would serve as natural alternative arbitrageurs, we document that funds reliant on leverage from a global systemically important bank suffer significant declines in assets and returns relative to unlevered funds. Thus, post-crisis regulation not only affects the targeted banks directly but also spills over to unregulated firms that rely on bank intermediation for their arbitrage strategies.
Schlagwörter: 
bank regulation
arbitrage
hedge funds
JEL: 
G01
G21
G23
G28
Dokumentart: 
Working Paper

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