West Loop Financial LLCArbitrage Capital Increases Market Efficiency – West Loop Financial LLC https://www.westloopfinancial.com Evolutionize Site Wed, 19 Aug 2020 20:50:49 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.22 Arbitrage Capital Increases Market Efficiency https://www.westloopfinancial.com/2016/08/15/arbitrage-capital-increases-market-efficiency/ https://www.westloopfinancial.com/2016/08/15/arbitrage-capital-increases-market-efficiency/#respond Mon, 15 Aug 2016 09:00:30 +0000 http://evolvemypractice.com/?p=3059 The hypothesis of an efficient market is based on the concept that informed, rational traders would arbitrage away any temporary deviations from “correct” prices. Thus, price efficiency depends upon the actions of arbitrageurs and the availability of arbitrage capital. When arbitrage capital is plentiful, anomalies should be quickly eliminated. However, if capital is scarce or...

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]]> The hypothesis of an efficient market is based on the concept that informed, rational traders would arbitrage away any temporary deviations from “correct” prices. Thus, price efficiency depends upon the actions of arbitrageurs and the availability of arbitrage capital.

When arbitrage capital is plentiful, anomalies should be quickly eliminated. However, if capital is scarce or there are sufficient frictions (such as trading costs, regulatory constraints and borrowing costs), while anomalies may shrink, they can still persist.

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