Gray, Wesley (2008): Information Exchange and the Limits of Arbitrage.
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Evidence suggests that arbitragers exchange investment ideas. We analyze why and under what circumstances sharing occurs. Our model suggests that sharing ideas will lead to the following: more efficient asset prices, larger arbitrager profits, and correlated arbitrager returns. We predict that arbitragers will exchange ideas in markets where arbitragers are capital constrained, noise trader influence is high, and arbitrage investors are more loss averse. We also predict that arbitrage networks can lead to crowded trades, which can create systematic risk in extreme market circumstances.
|Item Type:||MPRA Paper|
|Original Title:||Information Exchange and the Limits of Arbitrage|
|Keywords:||Arbitrage, hedge funds, market efficiency, information exchange, loss aversion, crowded trades|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors
G - Financial Economics > G1 - General Financial Markets > G10 - General
|Depositing User:||Wesley Gray|
|Date Deposited:||09. Jan 2009 16:10|
|Last Modified:||16. Feb 2013 02:27|
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