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Risky arbitrage, limits of arbitrage, and nonlinear adjustment in the dividend-price ratio
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Gallagher, Liam A. and Taylor, Mark P. (2001) Risky arbitrage, limits of arbitrage, and nonlinear adjustment in the dividend-price ratio. Economic Inquiry, 39 (4). pp. 524-536. doi:10.1093/ei/39.4.524 ISSN 0095-2583.
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Official URL: http://dx.doi.org/10.1093/ei/39.4.524
Abstract
We provide a simple test of two alternative views of arbitrage activity: the risky arbitrage hypothesis and the limits of arbitrage hypothesis. For the US., the speed of reversion of the market log dividend-price ratio towards the fundamental equilibrium is a nonlinear, increasing function of the degree of mispricing, providing evidence supporting the risky arbitrage hypothesis. Further research might concentrate on particular sectors where the risks of arbitrage are greatest and its effect is therefore likely to be weakest.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||
Journal or Publication Title: | Economic Inquiry | ||||
Publisher: | Wiley-Blackwell Publishing, Inc. | ||||
ISSN: | 0095-2583 | ||||
Official Date: | 2001 | ||||
Dates: |
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Volume: | 39 | ||||
Number: | 4 | ||||
Number of Pages: | 13 | ||||
Page Range: | pp. 524-536 | ||||
DOI: | 10.1093/ei/39.4.524 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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