Question

It is believed by some individuals that, In an efficient market, the actions of traders who constantly buy and sell on any perceived market mispricings will in effect cause market prices to correctly reflect asset values. A person who believes that the actions of these traders will not result in correctly valued prices are most apt to believe in which one of the following? Gambler's fallacy Limits to arbitrage Availability bias False consensus Clustering illusion

Answer 1

The correct answer is letter "B": Limits to arbitrage.

Step-by-step explanation:

The limits to arbitrage state that prices can stay unbalanced for prolonged periods due to restrictions imposed on funds that would usually be used by reasonable traders to arbitrate away pricing inefficiencies. The limits of arbitrage are closely related to the Efficient Market Theory (EMH).