Limits to Arbitrage when Market Participation Is Restricted

Thorsten Hens, P. Jean-Jacques Herings () and Arkadi Predtetchinskii
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Arkadi Predtetchinskii: METEOR

No 61, Research Memoranda from Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization

Abstract: There is an extensive litarature claiming that it is often difficult to make use of arbitrage opportunities in financial markets. This paper provides a new reason why existing arbitrage opportunities might not be seized. We consider a world with short-lived securities, no short-selling constraints and no transaction costs. We show that to exploit all existing arbitrage opportunities, traders should pay attention to all financial markets simultaneously. It gives a general result stating that failure to do so will leave some arbitrage opportunities unexploited with probability one.

Keywords: microeconomics (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-ifn, nep-mac and nep-rmg
Date: 2003
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Related works:
Working Paper: Limits to Arbitrage when Market Participation Is Restricted
Journal Article: Limits to arbitrage when market participation is restricted (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:umamet:2003061

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