It is believed by some individuals that, in an efficient market, the actions of traders who constantly buy and sell on any perceived market mispricing will in effect cause market prices to correctly reflect asset values. A person who believes that the actions of these traders will not result in correctly valued prices are most apt to believe in which one of the following?
A) Gambler's fallacy
B) Limits to arbitrage
C) Availability bias
D) False consensus
E) Clustering illusion

Question

Quizplus · Accepted Answer

Limits to arbitrage refers to the idea that market mispricings may persist due to factors such as transaction costs, capital constraints, and informational asymmetry that prevent traders from fully exploiting them. Therefore, someone who does not believe the actions of traders will result in correctly valued prices likely subscribes to this concept of limits to arbitrage.

It Is Believed by Some Individuals That, in an Efficient