Chapter

Professional Arbitrage

Andrei Shleifer

in Inefficient Markets

Published in print March 2000 | ISBN: 9780198292272
Published online November 2003 | e-ISBN: 9780191596933 | DOI: http://dx.doi.org/10.1093/0198292279.003.0004

Series: Clarendon Lectures in Economics

Professional Arbitrage

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Considers noise trader risk in the agency context of professional arbitrage. It elaborates on a performance‐based arbitrage model where arbitrageurs are affected by the inability of their investors to separate luck from skill, shedding further doubt on the effectiveness of arbitrage in achieving market efficiency. At the end, the chapter also briefly discusses the turbulence of financial markets in the summer of 1998, when Russia defaulted most of its debt, which vividly illustrated the limits of arbitrage.

Keywords: arbitrage; financial market; Long‐Term Capital Management; noise trader risk; performance‐based arbitrage; professional arbitrage; Russia

Chapter.  8759 words. 

Subjects: Financial Markets

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