JMF Capstone Wealth ManagementArbitrage Capital Increases Market Efficiency – JMF Capstone Wealth Management https://www.jmfcapstone.com An Alabama registered investment advisor Fri, 21 Nov 2025 19:30:19 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.22 Arbitrage Capital Increases Market Efficiency https://www.jmfcapstone.com/2016/08/15/arbitrage-capital-increases-market-efficiency/ https://www.jmfcapstone.com/2016/08/15/arbitrage-capital-increases-market-efficiency/#respond Mon, 15 Aug 2016 09:00:30 +0000 http://evolvemypractice.com/?p=3059 The hypothesis of an efficient market is based on the concept that informed, rational traders would arbitrage away any temporary deviations from “correct” prices. Thus, price efficiency depends upon the actions of arbitrageurs and the availability of arbitrage capital. When arbitrage capital is plentiful, anomalies should be quickly eliminated. However, if capital is scarce or...

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]]> The hypothesis of an efficient market is based on the concept that informed, rational traders would arbitrage away any temporary deviations from “correct” prices. Thus, price efficiency depends upon the actions of arbitrageurs and the availability of arbitrage capital.

When arbitrage capital is plentiful, anomalies should be quickly eliminated. However, if capital is scarce or there are sufficient frictions (such as trading costs, regulatory constraints and borrowing costs), while anomalies may shrink, they can still persist.

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