We survey theoretical developments in the literature on the limits of arbitrage. This literature
investigates how costs faced by arbitrageurs can prevent them from eliminating mispricings …

We derive dynamic optimal trading strategies that minimize the expected cost of trading a
large block of equity over a fixed time horizon. Specifically, given a fixed block S̄ of shares …

We propose a multiperiod model in which competitive arbitrageurs exploit discrepancies
between the prices of two identical risky assets traded in segmented markets. Arbitrageurs …

The effects of asset liquidity on expected returns for assets with infinite maturities (stocks)
are examined for bonds (Treasury notes and bills with matched maturities of less than 6 …

Transaction and holding costs make arbitrage costly. Mispricing exists to the extent that
arbitrage costs prevent rational traders from fully eliminating inefficiencies. Although the …

Arbitrage costs lead to large deviations of prices from fundamentals. Using a sample of
closed-end funds, I find that the market value of a fund is more likely to deviate from the …

We argue that arbitrage is limited if rational traders face uncertainty about when their peers
will exploit a common arbitrage opportunity. This synchronization risk—which is distinct from …

We show that the accrual anomaly documented by Sloan (1996)[Do stock prices fully reflect
information in accruals and cash flows about future earnings? The Accounting Review 71 …

We propose a dynamic equilibrium model of asset prices and trading volume when agents
face fixed transactions costs. We show that even small fixed costs can give rise to large “no …

We derive the optimal investment policy of a risk-averse investor in a market where there is a
textbook arbitrage opportunity, but where liabilities must be secured by collateral. We find …