Stock index arbitrage trades reveal minimal price discrepancies, challenging models.
The study looked at actual trades in the S&P 500 to see if stock index arbitrage models hold up in real life. They found that short sale rules don't really stop arbitrage, the cost of using arbitrage funds is higher than Treasury Bills, and price differences in trades are small. The models tested did somewhat support a version that includes an early liquidation option, but overall, they don't fully explain the trades.