Limits to Arbitrage When Market Participation Is Restricted

Th. Hens, P.J.J. Herings, A. Predtetchinski*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

3 Citations (Web of Science)
83 Downloads (Pure)

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. The paper gives a general result stating that failure to do so will leave some arbitrage opportunities unexploited with probability one.
Original languageEnglish
Pages (from-to)556-564
Number of pages9
JournalJournal of Mathematical Economics
Volume42
DOIs
Publication statusPublished - 1 Jan 2006

Cite this