Why are arbitrage opportunities short-lived?
A) Federal regulations will kick in to restrict trade and effectively shut the opportunity down.
B) Prices will fluctuate up and down as traders take advantage of the opportunity, resulting in the net present value (NPV) fluctuating between positive and negative values.
C) Once investors take advantage of the opportunity, prices will respond so that the buying and selling price become equal.
D) Arbitrage opportunities need a lot of information processing, which is very slow to arrive.

Question

Quizplus · Accepted Answer

Once investors take advantage of the opportunity, prices will respond so that the buying and selling price become equal, eliminating the arbitrage opportunity. This happens quickly in efficient markets where there are many active traders who can quickly identify and take advantage of the opportunity.

Why Are Arbitrage Opportunities Short-Lived