Hysteresis in Price Efficiency and the Economics of Slow-Moving Capital

• 成果类型: Article
• 署名作者: Dow, James; Han, Jungsuk; Sangiorgi, Francesco
• 署名单位: University of London; London Business School; Stockholm School of Economics; Frankfurt School Finance & Management
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa110
• 发表日期: 2021
• 页码: 2857
• 关键词: LIQUIDITY RISK; cross-section; MARKET; equilibrium; arbitrage; INFORMATION; contagion; DYNAMICS; CONVERGENCE; illiquidity

摘要

Will arbitrage capital flow into markets experiencing shocks, mitigating adverse effects on price efficiency? Not necessarily. In a dynamic model with privately informed capital-constrained arbitrageurs, price efficiency plays a dual role, determining both the profitability of new arbitrage and the ability to close existing positions profitably. An adverse shock to efficiency lengthens arbitrage duration, effectively reducing the amount of arbitrage capital available for new positions. If this falls below a critical mass, arbitrage capital flows out, amplifying the impact on price efficiency. This creates endogenous regimes: temporary shocks can trigger hysteresis, a persistent shift in price efficiency.