Political arbitrage is a
trading
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
strategy which involves using knowledge or estimates of future political activity to forecast and discount security values. For example, the major factor in the values of some foreign government bonds is the risk of default, which is a political decision taken by the country's government. The values of companies in war-sensitive sectors such as oil and arms are affected by political decisions to make war.
Legal trading must be based on publicly available information. However, there is a grey area involving lobbyists and market rumours. Like
insider trading there is scope for
conflicts of interest
A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, finance, financial or otherwise, and serving one interest could involve working against another. Typically, t ...
when political decision makers themselves are in positions to profit from private investments whose values are linked to their own public political actions.
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Arbitrage
Financial markets