Which of the following are considered limits to arbitrage?
I. sentiment-based risk
II. systematic risk
III. firm-specific risk
IV. noise trader risk

Question

Quizplus · Accepted Answer

Limits to arbitrage can include sentiment-based risk and noise trader risk, which affect the ability of arbitrageurs to exploit mispricings without facing undue risk. Firm-specific risk can also be a limit if it affects the arbitrage strategy's outcome. Systematic risk, however, is a broader market risk that affects all investments and is not typically considered a specific limit to arbitrage strategies, which often seek to exploit price discrepancies without exposure to broader market movements.

Which of the Following Are Considered Limits to Arbitrage