in each execution the mean percentage of profit decreased such that there was no statistically significant difference from zero profitability. Frenkel and Levich concluded that unexploited opportunities for profit do not exist in covered interest arbitrage. Using a time series dataset of daily spot and forward USD/JPY exchange rates and same-maturity short-term interest rates in both the United States and Japan, economists Johnathan A. Batten and Peter G. Szilagyi analyzed the sensitivity of forward market price differentials to short-term interest rate differentials. The researchers found evidence for substantial variation in covered interest rate parity deviations from equilibrium, attributed to transaction costs and market segmentation. They found that such deviations and arbitrage opportunities diminished significantly nearly to a point of elimination by the year 2000. Batten and Szilagyi point out that the modern reliance on electronic trading platforms and real-time equilibrium prices appear to account for the removal of the historical scale and scope of covered interest arbitrage opportunities. Further investigation of the deviations uncovered a long-term dependence, found to be consistent with other evidence of temporal long-term dependencies identified in asset returns from other financial markets including currencies, stocks, and commodities. Economists Wai-Ming Fong, Giorgio Valente, and Joseph K.W. Fung, examined the relationship of covered interest rate parity arbitrage opportunities with market liquidity and credit risk using a dataset of tick-by-tick spot and forward exchange rate quotes for the Hong Kong dollar in relation to the United States dollar. Their empirical analysis demonstrates that positive deviations from covered interest rate parity indeed compensate for liquidity and credit risk. After accounting for these risk premia, the researchers demonstrated that small residual arbitrage profits accrue only to those arbitrageurs capable of negotiating low transaction costs. See also Uncovered interest arbitrage Foreign exchange derivative References Arbitrage Financial economics Interest rates Foreign exchange market International finance fr:Arbitrage (finance)