Abstract

http://ssrn.com/abstract=475483
 
 

References (27)



 
 

Citations (24)



 


 



On the Role of Arbitrageurs in Rational Markets


Benjamin Croitoru


McGill University - Desautels Faculty of Management

Suleyman Basak


London Business School; Centre for Economic Policy Research (CEPR)

October 2005

EFA 2004 Maastricht Meetings Paper No. 2390; AFA 2004 San Diego Meetings

Abstract:     
We investigate the role of "arbitrageurs," who exploit price discrepancies between redundant securities. Arbitrage opportunities arise endogenously in an economy populated by rational, heterogeneous investors facing investment restrictions. We show that an arbitrageur alleviates these restrictions and improves the transfer of risk amongst investors. When the arbitrageur behaves noncompetitively, taking into account the price impact of his trades, he optimally limits the size of his positions due to his decreasing marginal profits. When the arbitrageur is subject to margin requirements and is endowed with capital from outside investors, the size of his trades and capital are endogenously determined in equilibrium.

Number of Pages in PDF File: 36

Keywords: arbitrage, asset pricing, margin requirements, noncompetitive markets, risk-sharing

JEL Classification: C60, D50, D90, G11, G12

working papers series


Download This Paper

Date posted: December 4, 2003  

Suggested Citation

Croitoru, Benjamin and Basak, Suleyman, On the Role of Arbitrageurs in Rational Markets (October 2005). EFA 2004 Maastricht Meetings Paper No. 2390; AFA 2004 San Diego Meetings. Available at SSRN: http://ssrn.com/abstract=475483 or http://dx.doi.org/10.2139/ssrn.475483

Contact Information

Benjamin Croitoru
McGill University - Desautels Faculty of Management ( email )
1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-3237 (Phone)
514-398-3876 (Fax)
Suleyman Basak (Contact Author)
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
44 (0)20 7000 8256 (Phone)
44 (0)20 7000 8201 (Fax)
HOME PAGE: http://faculty.london.edu/sbasak/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 5,530
Downloads: 1,363
Download Rank: 6,566
References:  27
Citations:  24

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.343 seconds