Market Inefficiencies and the Limits of Arbitrage
- Miguel Virgen, PhD Student in Business
- Oct 29, 2024
- 5 min read
Updated: Mar 14
January (Doctors In Business Journal) - Market efficiency is a fundamental concept in finance, rooted in the Efficient Market Hypothesis (EMH) proposed by Eugene Fama in the 1960s. EMH suggests that asset prices reflect all available information, making it impossible to consistently achieve higher returns than the overall market without taking on additional risk. However, in practice, market inefficiencies exist, and the limits of arbitrage pose challenges to correcting these inefficiencies. This article explores the nature of market inefficiencies, the mechanics of arbitrage, and the constraints that limit arbitrageurs' ability to exploit price discrepancies.
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