Which one of these statements is correct?
A)Irrationality may be related across investors.
B)Arbitrage is risk-free.
C)Irrationality always cancels out among a group of investors.
D)Investors are always rational.
E)Arbitrage eliminates all market inefficiencies.

Question

Quizplus · Accepted Answer

Irrationality may be related across investors, meaning that if one investor is making irrational decisions, it may influence the decisions of other investors. This can lead to market inefficiencies and potential opportunities for arbitrage. B is incorrect because arbitrage involves taking advantage of market inefficiencies, and there is always some level of risk involved. C and D are incorrect because not all investors are rational and irrationality may not always cancel out among a group of investors. E is incorrect because while arbitrage can reduce market inefficiencies, it may not eliminate all inefficiencies.

Which One of These Statements Is Correct