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Does Arbitrage Flatten Demand Curves for Stocks?

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  • Jeffrey Wurgler
  • Ekaterina Zhuravskaya

Abstract

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

Suggested Citation

  • Jeffrey Wurgler & Ekaterina Zhuravskaya, 2000. "Does Arbitrage Flatten Demand Curves for Stocks?," Yale School of Management Working Papers ysm152, Yale School of Management, revised 01 Nov 2001.
  • Handle: RePEc:ysm:wpaper:ysm152
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    File URL: https://repec.som.yale.edu/icfpub/publications/2554.pdf
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