The Limits of Arbitrage
Open accessAbstract
Textbook arbitrage in financial markets requires no capital and entails no risk. In reality, almost all arbitrage requires capital, and is typically risky. Moreover, professional arbitrage is conducted by a relatively small number of highly specialized investors using other people's capital. Such professional arbitrage has a number of interesting implications for security pricing, including the possibility that arbitrage becomes ineffective in extreme circumstances, when prices diverge far from fundamental values. The model also suggests where anomalies in financial markets are likely to appear, and why arbitrage fails to eliminate them.
The claims and statistics of this paper haven’t been checked yet.
Run the check — free, no account needed. It reads the open-access text and checks the sources it cites.
Integrity signals
Registry
Cites
Statistics
Claims the paper makes
The claims and statistics of this paper haven’t been checked yet.
Run the check — free, no account needed. It reads the open-access text and checks the sources it cites.
Self-check
Percentages, sums and reported differences re-computed from the paper’s own numbers.
The self-check needs the paper’s full text.
Cites
CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*
Sharpe, W. F. (1964) · The Journal of Finance · doi:10.1111/j.1540-6261.1964.tb02865.x · Cited by 19,441 · see citing works
Flagged first, then by citations
Cited by
Sorted by citations
Morck, R., Yeung, B., & Yu, W. (2000) · Journal of Financial Economics · doi:10.1016/s0304-405x(00)00071-4 · Cited by 3,335 · see citing works
An Engine, Not a Camera: How Financial Models Shape Markets
MacKenzie, D. (2006) · doi:10.7551/mitpress/9780262134606.001.0001 · Cited by 1,766 · see citing works
Does Academic Research Destroy Stock Return Predictability?
MCLEAN, R. D., & PONTIFF, J. (2016) · The Journal of Finance · doi:10.1111/jofi.12365 · Cited by 1,566 · see citing works
Shiller, R. J. (2017) · American Economic Review · doi:10.1257/aer.107.4.967 · Cited by 1,004 · see citing works
Do retail trades move markets?
Barber, B. M., Odean, T., & Zhu, N. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhn035 · Cited by 903 · see citing works
Wolfers, J., & Zitzewitz, E. (2004) · Journal of Economic Perspectives · doi:10.1257/0895330041371321 · Cited by 889 · see citing works
The illusory nature of momentum profits
Lesmond, D. A., Schill, M. J., & Zhou, C. (2004) · Journal of Financial Economics · doi:10.1016/s0304-405x(03)00206-x · Cited by 657 · see citing works
Cognitive abilities and behavioral biases
Oechssler, J., Roider, A., & Schmitz, P. W. (2009) · Journal of Economic Behavior & Organization · doi:10.1016/j.jebo.2009.04.018 · Cited by 491 · see citing works
Can ChatGPT forecast stock price movements? Return predictability and large language models
Lopez-Lira, A., & Tang, Y. (2026) · Journal of Financial Economics · doi:10.1016/j.jfineco.2026.104335 · Cited by 425 · see citing works
Corporate ESG Profiles and Investor Horizons
Starks, L. T., Venkat, P., & Zhu, Q. (2017) · doi:10.2139/ssrn.3049943 · Cited by 319 · see citing works
Koijen, R. S. J., Moskowitz, T. J., Pedersen, L. H., & Vrugt, E. B. (2018) · Journal of Financial Economics · doi:10.1016/j.jfineco.2017.11.002 · Cited by 286 · see citing works
Learning and the disappearing association between governance and returns
Bebchuk, L. A., Cohen, A., & Wang, C. C. Y. (2013) · Journal of Financial Economics · doi:10.1016/j.jfineco.2012.10.004 · Cited by 311 · see citing works
ESG Preference, Institutional Trading, and Stock Return Patterns
Cao, J., Titman, S., Zhan, X., & Zhang, W. (2023) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109022000916 · Cited by 178 · see citing works
Limits to Arbitrage and Commodity Index Investment: Front-Running the Goldman Roll
Mou, Y. (2010) · doi:10.2139/ssrn.1716841 · Cited by 98 · see citing works
Investor sentiment in the stock market
Baker, M., & Wurgler, J. (2007) · Journal of Economic Perspectives · doi:10.1257/jep.21.2.129 · Cited by 94 · see citing works
The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis
Menkhoff, L., & Taylor, M. P. (2007) · Journal of Economic Literature · doi:10.1257/jel.45.4.936 · Cited by 78 · see citing works
“(This is an example of the " limits of arbitrage " effect, as suggested in a more general setting by Shleifer and Vishny, 1997.)”
BackgroundTietjen, O., Lessmann, K., & Pahle, M. (2021) · Resource and Energy Economics · doi:10.1016/j.reseneeco.2020.101214 · Cited by 22 · see citing works
- Authors
- Shleifer, A., & Vishny, R. W.
- Affiliations
- National Bureau of Economic Research (US)
- ORCID
- Vishny, Robert W.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1997-03
- Volume
- 52
- Issue
- 1
- Pages
- 35-55
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2103679355
- Cited by
- 5,291
- References
- 1
- Citations by year
- 2026: 300 · 2025: 238 · 2024: 191 · 2023: 211 · 2022: 204 · 2021: 242 · 2020: 206 · 2019: 231 · 2018: 228 · 2017: 243 · 2016: 261 · 2015: 258 · 2014: 270 · 2013: 238 · 2012: 261
- FWCI
- 16.64
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- The Journal of Finance (publishedVersion)
- National Bureau of Economic Research (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- SSRN Electronic Journal (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Keywords
- limits to arbitrage, arbitrage, market efficiency, market microstructure, information asymmetry
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Statistics and arithmetic are recomputed, not judged.
Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.
What counts as a claim ›How we measure confidence ›How we check this ›
Are you an author, or do you see a problem with this page? Request a review
