Liquidity cognition and limits of arbitrage

Andrea Mantovi (andrea.mantovi@unipr.it) and G. Tagliavini (giulio.tagliavini@unipr.it)

No 2017-EP01, Economics Department Working Papers from Department of Economics, Parma University (Italy)

Abstract: An inquiry about the limits of arbitrage connected with liquidity cognition is set forth. The hierarchy of money (Mehrling, 2012b; Pozsar, 2014) is shown to provide sharp insights on the emergence of endogenous constraints which may limit the strategic space of professional arbitrageurs in empirically relevant contexts. A case study (Mitchell and Pulvino, 2012) sets the stage for our theoretical proposal. Our approach is conjectured to represent a fruitful line of progress for behavioral finance.

Keywords: Liquidity; Limits of arbitrage; Hierarchy of Money (search for similar items in EconPapers)
JEL-codes: D01 D04 D11 (search for similar items in EconPapers)
Pages: 17
Date: 2017
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