Limits to arbitrage when market participation is restricted
Working paper

View/ Open
Date
2003-11Metadata
Show full item recordCollections
- Discussion papers (FOR) [575]
Abstract
There is an extensive literature 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.
Publisher
Norwegian School of Economics and Business Administration. Department of Finance and Management ScienceSeries
Discussion paper2003:16