Including cost, revenue, and tax, the after-tax gain for a long arbitrageur
is (1-c) (1+d) E[[P.
Because the arbitrageur
will also have to be compensated for the risk that noise traders' continued confusion will adversely affect the value of her rational bets, the required return goes up and level of activity goes down, resulting in a cost-driven level of market inefficiency.
We analyze a three-date (two-period) model of an aspiring professional arbitrageur
(or "convergence trader" in the language of Kyle and Xiong, 2001, and Xiong, 2001) who must obtain financing from investors less informed than he is about the intrinsic value of a financial asset--that is, its liquidation value at the end of the second period.
For example, an arbitrageur
with a simultaneous position in Treasury spot and futures markets generally cannot cross-margin.
is an individual who takes advantage of a situation in which securities are mispriced relative to each other.
In a merger that takes several months to close, sometimes arbitrageurs
will wind up buying and selling the shares involved amongst themselves.
Each bank intends to obtain gold from the others at a bargain price which can be paid out to arbitrageurs
or sold on the market for a profit.
Although this strategy requires no short sale of stock, some resale risk is involved because stock prices may move before the arbitrageur
has the opportunity to sell the shares.
Time then for some unlikely heroes to step forward and at Dundalk on Friday it was the Donal Kinsella-trained Arbitrageur
who took the opportunity to round off his season on a winning note.
It was also the postal agency that spearheaded the investigations in the late 1980s leading to the high-profile convictions of arbitrageur
Ivan Boesky and junk-bond king Mike Milken for insider trading and securities fraud.
Absent this certainty, an arbitrageur
would not know whether he would be able to maintain his position over time since seemingly irrational changes might force a trade to be undone at a loss.
When Pennzoil adamantly refused its offer, Guy Wyser-Pratte, a well-known arbitrageur
and a Pennzoil shareholder, launched a vigorous proxy battle against Pennzoil's board.