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 language | English |
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Pages (from-to) | 556-564 |
Number of pages | 9 |
Journal | Journal of Mathematical Economics |
Volume | 42 |
DOIs | |
Publication status | Published - 1 Jan 2006 |