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The Limits of Arbitrage

Wednesday, August 26, 2009

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Let’s get this series started off right. Andrei Shleifer and Robert W. Vishny, “The Limits of Arbitrage,” The Journal of Finance 52:1 (1997). Textbook arbitrage in financial markets requires no capital and entails no risk. In reality, almost all arbitrage requires capital, and is typically risky. Moreover, professional arbitrage is conducted by a relatively small number of highly specialized investors using other people’s capital. Such professional arbitrage has a number of interesting implications for security pricing, including…

Financial Geekery Mini-linkfest

Monday, October 6, 2008

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When the market is frustrating or weird or mostly untouchable, we find that’s usually the best time to geek out. The research linked below has, beyond its immediate educational value, the hidden benefit of also being difficult and long enough to keep you from overtrading and/or obsessing about day-to-day nonsense. Emanuel Derman on models. More on volatility as an asset class. We expressed our doubts about pursuing this notion qua retail traders here. Obviously, there are variance and…