In an efficient market,it is believed by some individuals that the actions of traders who constantly buy and sell on any perceived market mispricings 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

The idea that market mispricings will be corrected by the actions of traders assumes that there are no significant limits to arbitrage, which means that traders are able to freely and easily exploit market mispricings. However, those who believe that market prices may not correctly reflect asset values despite the actions of traders likely believe in the presence of limits to arbitrage. This refers to various factors that may prevent traders from being able to fully exploit market mispricings, such as transaction costs, liquidity constraints, regulatory barriers, or other market inefficiencies. Therefore, they may argue that market prices may remain divergent from underlying asset values due to such limitations.

In an Efficient Market,it Is Believed by Some Individuals That