On the Extent of Arbitrage Constraints within Transaction Algebras (A non-standard approach)

Rodolfo Apreda ()

No 239, CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA

Abstract: Although the standard trading arbitrage model provides with simple settings and adjustment mechanisms so as to take profit whenever an arbitrage opportunity comes up, empirical evidence has been piling up showing that this point of view suffers from many downsides, leaving distinctive issues unresolved. By the same token, similar shortcoming prevent the standard financial arbitrage model from being functional to real markets environments. To overcome such drawbacks, this paper sets forth a new approach that is grounded on transactional algebras, which shapes the arbitrage gaps of return within institutional settings, to give account of market microstructure features and enlarged transaction costs.

Keywords: Arbitrage; Transaction Costs; Residual Information Sets; Differential Rates of Return; Arbitrage Gaps (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2003-07
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Persistent link: http://EconPapers.repec.org/RePEc:cem:doctra:239

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