Question

___________ occurs when market participants observe returns on a security that are larger than what is justified by the characteristics of that security and take action to quickly eliminate the unexploited profit opportunity.

Answer 1

Arbitrage

Step-by-step explanation:

Arbitrage is defined as the process where investors take advantage of price difference between two or more markets by making a combination of matching deals that takes advantage of the price difference.

For example an arbitrage opportunity is when a person can buy an instrument at a low price and sell it for a higher price.

It occurs when investors notice a price advantage that is not justified by the present characteristics of a security, and they work towards taking advantage of the opportunity.