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Does the Market Anticipate? Can it? Should it?

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  • Kangda Ken Wren

Abstract

We explore a nuance to 'no arbitrage' in relation to 'informational efficiency': acting immediately on an arbitrage is sometimes suboptimal; in such cases optimised trading can suppress the anticipation of predictable risk-outcomes, thereby creating an apparent Status Quo Bias, with Momentum and Low-Risk effects. This is shown in continuous time under model- or event-risk, where, unlike existing approaches, we allow pre-horizon risk-resolution and Risk-Neutral Equivalent pricing, with the technical challenges overcome through results from the 'weak viability' and 'side/inside information' literature. Thus the tension between 'no arbitrage', 'informational efficiency' and 'risk-anticipation' is exposed and treated in a practically relevant setting.

Suggested Citation

  • Kangda Ken Wren, 2026. "Does the Market Anticipate? Can it? Should it?," Papers 2603.02187, arXiv.org, revised Apr 2026.
    • Handle: RePEc:arx:papers:2603.02187
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    References listed on IDEAS

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