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Does Arbitrage Flatten Demand Curves for Stocks?

  • Jeffrey Wurgler
  • Ekaterina Zhuravskaya

In textbook theory, demand curves for stocks are kept flat by riskless arbitrage between perfect substitutes. In reality, however, individual stocks do not have perfect substitutes. The risk inherent in arbitrage between imperfect substitutes may deter risk-averse arbitrageurs from flattening demand curves. Consistent with this s

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm152.

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Date of creation: 01 Aug 2000
Date of revision: 01 Nov 2001
Handle: RePEc:ysm:somwrk:ysm152
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