The welfare analysis of Gromb and Vayanos (2002) shows that arbitrageurs
may not take on an optimal level of risk, in part because they fail to internalize the effect on prices of changing their positions.
It is easy to understand how arbitrageurs
can create practical difficulties for bookmakers, but it is hard to accept the argument that arbitrage is self-evidently wrong or that arbitrageurs
are self-evidently bad.
They are tax-neutral arbitrageurs
and trade for profits.
significant discount and will also mean that the arbitrageurs
will have to find
Noise trader risk similarly reduces arbitrage effectiveness because arbitrageurs
bear the risk that noise traders will continue to be irrational, therefore maintaining, or even increasing, the mispricing.
routinely pour billions into the market to squeeze out a "plus.
To harness the exponentially increasing amount of "young money" around, museums everywhere started up junior collectors groups so that, at the height of the '80s, the massed army of contemporary-art collectors included old-liners entranced by new art (like Jerry Elliott and Elaine Dannheisser); recently minted multimillionaires who realized, like Broad, that "it's stimulating to meet people outside the business world, who have a different way of looking at life," and soon discovered the social-status possibilities of collecting; and the young investment bankers and arbitrageurs
Armies of under-employed City advisors, lawyers, arbitrageurs
, bankers, analysts, etc, salivate over plans, advice and strategies.
For one thing, financial markets are not complete and frictionless, so arbitrage in general is risky and costly In addition, it is not realistic to assume that the number of informed arbitrageurs
or the supply of financial resources they have to invest in arbitrage strategies is limitless.
In recent arbitrage models developed by, inter alios, Grossman and Miller (1988), De Long, Shleifer, Summers, and Waldmann (1990) and Campbell and Kyle (1993), arbitrage is generally less than perfect because arbitrageurs
face either fundamental or noise trader risk.
In a merger that takes several months to close, sometimes arbitrageurs
will wind up buying and selling the shares involved amongst themselves.
The principle simply assumes that arbitrageurs
enter the market and quickly eliminate mispricing if a riskless profit opportunity exists.