Arbitrage Opportunities: Anatomy and Remediation

Bossaerts Peter, Jason Shachat and Kuangli Xie

MPRA Paper from University Library of Munich, Germany

Abstract: We introduce an experimental design where arbitrage opportunities emerge reliably and repeatedly. We observe significantly higher sell-side than buy-side arbitrage opportunities. We study ways to mitigate them. Relaxing margin requirements, shortsale restrictions, or both have neither statistically nor economically significant effects. Increasing competition (more participants, each with small stakes), and more impactful, participants’ stakes (few wealthy participants each with large exposures), generate large reductions in arbitrage opportunities. Hence, we advocate increased competition for small markets, and allowance for large stakes in large markets, rather than relaxation of rules on margin purchases or shortsales.

Keywords: Limits of arbitrage; Experimental asset markets; Market capitilization (search for similar items in EconPapers)
JEL-codes: C92 D53 G12 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/87273/1/MPRA_paper_87273.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/88243/1/MPRA_paper_87273.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/88243/8/MPRA_paper_88243.pdf revised version (application/pdf)

Related works:
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:87273

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 ().