Arbitrage: Historical Perspectives

Abstract

Abstract This article discusses the history of arbitrage from ancient times until the beginning of the twentieth century. Opportunities for arbitrage trading in ancient times were related to the movement of goods over long distances. The key role of the bill of exchange in arbitrage trading during the Middle Ages is identified and the connection to “arbitration of exchange” is discussed. A seventeenth‐century arbitrage involving the gold and bill of exchange markets is detailed. As reflected in merchant manuals of that period, the connection between riskless arbitrage trading and the method of conducting arbitration of exchange in the eighteenth and nineteenth centuries is detailed. An overview of nineteenth century arbitrage trading in securities and commodities is also provided. The article concludes with an examination of the etymology and historical usage of the word “arbitrage” and the associated “arbitration of exchange”.

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