The Limits of Arbitrage

Andrei Shleifer and Robert Vishny

No 5167, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In traditional models, arbitrage in a given security is performed by a large number of diversified investors taking small positions against its mispricing. In reality, however, arbitrage is conducted by a relatively small number of highly specialized investors who take large positions using other people's money. Such professional arbitrage has a number of interesting implications for security pricing, including the possibility that arbitrage becomes ineffective in extreme circumstances, when prices diverge far from fundamental values. The model also suggests where anomalies in financial markets are likely to appear, and why arbitrage fails to eliminate them.

Date: 1995-07
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as Journal of Finance, Vol. 52, no. 1 (1997): 35-55.

Downloads: (external link)
http://www.nber.org/papers/w5167.pdf (application/pdf)

Related works:
Journal Article: The Limits of Arbitrage (1997)
Working Paper: The Limits of Arbitrage (1995)
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:nbr:nberwo:5167

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5167

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().