Information Exchange and the Limits of Arbitrage

Wesley Gray ()

MPRA Paper from University Library of Munich, Germany

Abstract: Evidence suggests that arbitragers exchange investment ideas. We analyze why and under what circumstances sharing occurs. Our model suggests that sharing ideas will lead to the following: more efficient asset prices, larger arbitrager profits, and correlated arbitrager returns. We predict that arbitragers will exchange ideas in markets where arbitragers are capital constrained, noise trader influence is high, and arbitrage investors are more loss averse. We also predict that arbitrage networks can lead to crowded trades, which can create systematic risk in extreme market circumstances.

Keywords: Arbitrage; hedge funds; market efficiency; information exchange; loss aversion; crowded trades (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 G23 (search for similar items in EconPapers)
Date: 2008-12-31
New Economics Papers: this item is included in nep-mst and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/12621/1/MPRA_paper_12621.pdf original version (application/pdf)

Related works:
Working Paper: Information Exchange and the Limits of Arbitrage (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:12621

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().