Arbitrageurs may be unable to exploit behavioral biases due to I) fundamental risk.II) implementation costs.III) model risk.IV) conservatism.V) regret avoidance.
A) I and II only
B) I, II, and III
C) I, II, III, and V
D) II, III, and IV
E) IV and V

Question

Quizplus · Accepted Answer

Arbitrageurs may face difficulties exploiting behavioral biases due to fundamental risk (the risk that the asset's price moves against the arbitrage position), implementation costs (costs associated with executing trades), and model risk (the risk that the models used to identify arbitrage opportunities are flawed). Conservatism and regret avoidance are psychological biases that affect individual decision-making but are not direct obstacles for arbitrageurs in exploiting market inefficiencies.

Arbitrageurs May Be Unable to Exploit Behavioral Biases Due to I)