Limits to Arbitrage when Market Participation Is Restricted

Thorsten Hens, P. Jean-Jacques Herings and Arkadi Predtetchinskii

No 176, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: There is an extensive literature claiming that it is often difficult to make use of arbitrage opportunities in nancial 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 nancial markets simultaneously. It gives a general result stating that failure to do so will leave some arbitrage oppor- tunies unexploited with probability one.

Keywords: Arbitrage; Bounded rationality (search for similar items in EconPapers)
JEL-codes: D52 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Limits to arbitrage when market participation is restricted (2006)
Working Paper: Limits to arbitrage when market participation is restricted (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:176

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