Market selection process naturally eliminates arbitrage opportunities in financial markets.
Arbitrage opportunities can disappear in the long run due to market selection, even if people make irrational investment decisions. The study looked at two types of investors and assets with random dividends. Short-term arbitrage can happen based on how investors act, but in the long run, these opportunities vanish if both types of investors survive. The key is that one type of investor must not drive the other out of the market for arbitrage to persist.