prevent appraisal arbitrageurs
from having the option to wait and then
Transkaryotic only marginally expanded the time available to arbitrageurs
for evaluating appraisal claims and, more importantly, only affected a subset of merger transactions.
In a cash or fixed value stock swap offer, arbitrageurs
only need to purchase and hold the target's stock until deal completion.
By comparison, Brunnermeier and Pedersen (2009) derive a margin spiral, in which lower asset prices reduce arbitrageur
net worth through higher margins.
Furthermore, when heightened risk aversion disrupts the activities of arbitrageurs
, policymakers may lower long-term rates more effectively through asset purchases than through communicating their intentions to lower the expected path of future short-term rates.
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.
The investors provide the arbitrageur
with funds to invest in an underpriced asset at the outset of the model.
For example, if an ETF's shares trade at a premium to net asset value, an arbitrageur
could purchase the securities to be deposited upon the purchase of ETF shares, purchase a creation unit of shares from the ETF, and sell the ETF shares through a broker at the market price.
In the 1980s, arbitrageur
Ivan Boesky and junk-bond investor Michael Milken went to jail.
In order to satiate the demand for new housing, the developers turned to the feds, offering land transactions that would make an arbitrageur
blush with envy.
It is not an arbitrageur
or short-term investor primarily interested in turning an immediate profit.