A possible limit on arbitrage activity that may allow behavioral biases to persist is ________.
A) technical trends in prices
B) momentum effects
C) fundamental risk
D) trend reversals

Question

Quizplus · Accepted Answer

Fundamental risk can limit arbitrage activity because arbitrageurs face the risk that their trades might not converge to the expected value due to changes in the underlying fundamentals of the asset. This risk can deter arbitrage, allowing prices that deviate from fundamental values due to behavioral biases to persist longer than they otherwise would.

A Possible Limit on Arbitrage Activity That May Allow Behavioral