Time Arbitrage

DEFINITION of 'Time Arbitrage'

An opportunity created when a stock misses its mark and is sold based on a short-term outlook with little change in the long-term prospects of the company. This miss occurs when a company fails to meet earnings estimates by analysts or its guidance, resulting in a short-term stumble where the price of the stock decreases. Some investors use time arbitrage to increase their chances of outperforming the market.

BREAKING DOWN 'Time Arbitrage'

There are numerous examples of time arbitrage. Generally speaking, single misses do not mean a company is in trouble, and there is often a good chance of a rebound long term. However, if the misses become habitual, time arbitrage may actually be a losing proposition. Essentially, time arbitrage is another version of the old advice, "buy on bad news, sell on good."

RELATED TERMS
  1. Risk Arbitrage

    A broad definition for three types of arbitrage that contain ...
  2. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage ...
  3. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  4. Statistical Arbitrage

    A profit situation arising from pricing inefficiencies between ...
  5. Conversion Arbitrage

    An options trading strategy employed to exploit the inefficiencies ...
  6. Political Arbitrage Activity

    An arbitrage activity that involves trading securities based ...
Related Articles
  1. Trading

    Trading The Odds With Arbitrage

    Profiting from arbitrage is not only for market makers - retail traders can find opportunity in risk arbitrage.
  2. Trading

    Arbitrage and Pairs Trading

    At a basic level, arbitrage is the process of simultaneously buying and selling the same (or equivalent) securities on different markets to take advantage of price differences and make a profit. ...
  3. ETFs & Mutual Funds

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  4. Trading

    Covered Interest Arbitrage

    Covered interest arbitrage is a trading strategy in which an investor uses a forward currency contract to hedge against exchange rate risk.
  5. Trading

    NYIF Instructor Series: Risk Arbitrage

    In this short instructional video Jack Farmer explains what risk arbitrage is outlines three different examples of it.
  6. Markets

    How To Arbitrage Precious Metals

    Here are the fine points, trading tips, suitable securities, and examples for precious metal arbitrage trading.
  7. Managing Wealth

    Make Money Through Risk Arbitrage Trading

    Risk arbitrage provides a valuable trading strategy for M&A or other corporate actions eligible stocks. Investopedia explains how it works.
  8. Trading

    Understanding Arbitrage Pricing Theory

    Investors use the arbitrage pricing theory to identify an asset that’s incorrectly priced.
  9. Trading

    Arbitrage Squeezes Profit From Market Inefficiency

    This influential strategy capitalizes on the relationship between price and liquidity.
  10. ETFs & Mutual Funds

    How ETF Arbitrage Works

    ETF arbitrage brings the market price of ETFs back in line with net asset values when divergence happens. But how does ETF arbitrage work?
RELATED FAQS
  1. How do I use the news to find arbitrage opportunities?

    Learn what risk arbitrage trading is and how this type of arbitrage trading opportunity is available to individual retail ... Read Answer >>
  2. What skills should I acquire to take advantage of arbitrage trading?

    Understand what arbitrage trading involves and what the necessary skill set is that a trader must develop in order to master ... Read Answer >>
  3. What models should I use to make arbitrage trades?

    Learn about different types of arbitrage models and techniques, and discover why classic arbitrage opportunities are very ... Read Answer >>
  4. How do I use software to make arbitrage trades?

    Understand the meaning of arbitrage trading, and learn how traders employ software programs to detect arbitrage trade opportunities. Read Answer >>
  5. What are the biggest risks associated with covered interest arbitrage?

    Investing money can be confusing for novice investors. Find out more about covered interest arbitrage and the risks that ... Read Answer >>
  6. What is the difference between arbitrage and hedging?

    Dive into two very important financial concepts: arbitrage and hedging. See how each of these strategies can play a role ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center