Social Sciences
3 years ago

Competition and Wealthy Participants Key to Reducing Arbitrage Opportunities

MPRA Paper
Arbitrage Opportunities: Anatomy and Remediation
Peter Bossaerts, Shachat Jason, Xie Kuangli

Paper Summary

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Arbitrage opportunities were studied in an experiment. Sell-side opportunities were found to be more common than buy-side ones. Changing margin requirements or short sale restrictions didn't make a big difference. More competition and larger stakes by participants reduced arbitrage opportunities significantly. This suggests that increasing competition in small markets and allowing large stakes in big markets is more effective than changing rules on margin purchases or short sales.