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Liquidity cognition and limits of arbitrage

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  • A. Mantovi
  • G. Tagliavini

Abstract

An inquiry about the limits of arbitrage connected with liquidity cognition is set forth. The hierarchy of money (Mehrling, 2012b; Pozsar, 2014) is shown to provide sharp insights on the emergence of endogenous constraints which may limit the strategic space of professional arbitrageurs in empirically relevant contexts. A case study (Mitchell and Pulvino, 2012) sets the stage for our theoretical proposal. Our approach is conjectured to represent a fruitful line of progress for behavioral finance.

Suggested Citation

  • A. Mantovi & G. Tagliavini, 2017. "Liquidity cognition and limits of arbitrage," Economics Department Working Papers 2017-EP01, Department of Economics, Parma University (Italy).
    • Handle: RePEc:par:dipeco:2017-ep01
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Liquidity; Limits of arbitrage; Hierarchy of Money;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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