Arbitrage Pricing in Hong Kong

Paper Summary:

This paper attempts to determine how effective the arbitrary pricing theory can be when it is applied to the current situation in Hong Kong to identify the market return and any possible macroeconomic factors such as interest rates, stock market indexes, GDP, inflation rate. The paper accomplishes this through an analysis of empirical studies and a review of current and chronological macroeconomic indicators for Hong Kong.

Outline:
Chapter 1: Introduction
Statement of the Problem
Purpose of Study
Importance of Study
Scope of Study
Rationale of Study
Overview of Study
Chapter 2: Review of Related Literature
Chapter 3: Methodology
Description of the Study Approach
Data-Gathering Method and Database of Study
Chapter 4: Data Analysis
Chapter 5: Summary, Conclusions, Recommendations and Reflections

From the Paper:

"Modern economics - and society - requires well-established laws to function efficiently. In this regard, the first law of economics is clearly the law of supply and demand, but the "law of one price" (hereafter simply "the Law") also plays an important role as well. While economic theory suggests that these processes will be maintained precisely in competitive markets with no transactions costs and no barriers to trade, in real world setting, details concerning market institutions are also important in determining whether disruptions in the law of supply and demand can occur (Lamont & Thaler, 2003). Many economists have traditionally assumed that the Law could be applied almost exactly in financial markets because of the workings of arbitrage. In this regard, these authors define arbitrage as "the simultaneous buying and selling of the same security for two different prices, is perhaps the most crucial concept of modern finance" (Lamont & Thaler, 2003, p. 191). "

Sample of Sources Used:

• Arditti, F. D. (1967, March). Risk and the required return on equity. Journal of Finance, 22, 19- 36.
• Black's law dictionary. (1990). St. Paul, MN: West Publishing Co.
• Bothamley, J. (1993). Dictionary of theories. London: Gale Research International, Ltd.
• Burke, M. E. (1999). China's stock markets and the World Trade Organization. Law and Policy in International Business, 30(2), 321.
• Carrieri, F., & Majerbi, B. (2006). The pricing of exchange risk in emerging stock markets. Journal of International Business Studies, 37(3), 372.

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