Limits to arbitrage when market articipation is restricted
AbstractThere is an extensive litarature claiming that it is often difficult to make use of arbitrage opportunities in financial markets. This paper provides a new reason why existing arbitrage opportunities might not be seized. We consider a world with short-lived securities, no short-selling constraints and no transaction costs. We show that to exploit all existing arbitrage opportunities, traders should pay attention to all financial markets simultaneously. It gives a general result stating that failure to do so will leave some arbitrage opportunities unexploited with probability one.
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Bibliographic InfoPaper provided by Maastricht University in its series Open Access publications from Maastricht University with number urn:nbn:nl:ui:27-12154.
Date of creation: 2006
Date of revision:
Publication status: Published in Journal of mathematical economics (2006) v.42, p.556-564
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Other versions of this item:
- Hens, Thorsten & Jean-Jacques Herings, P. & Predtetchinskii, Arkadi, 2006. "Limits to arbitrage when market participation is restricted," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 556-564, August.
- Thorsten Hens & P. Jean-Jacques Herings & Arkadi Predtetchinskii, . "Limits to Arbitrage when Market Participation Is Restricted," IEW - Working Papers 176, Institute for Empirical Research in Economics - University of Zurich.
- Hens,Thorsten & Herings,P. Jean-Jacques & Predtetchinskii,Arkadi, 2003. "Limits to Arbitrage when Market Participation Is Restricted," Research Memoranda 061, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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