arbitrage

问题如下：

Which of the following situations will most likely promote an increase in market efficiency?

选项：

A.An increase in arbitrage opportunities B.A decrease in trading activity C.An increase in information availability

解释：

Solution

1. Incorrect. Arbitrage is a set of transactions that produces riskless profits. Arbitrageurs are traders who engage in such trades to benefit from pricing discrepancies (inefficiencies) in markets. Such trading activity contributes to market efficiency. If arbitrage opportunities increase, it means that there are either more pricing discrepancies or fewer arbitrageurs (or both), and this situation will lead to a reduction in market efficiency.

2. Incorrect. A decrease in trading activity can cause or accentuate other market imperfections that impede market efficiency.

3. Correct. Information availability (e.g., active financial news media or information regarding trading activity and traded companies) and financial disclosure should promote or increase market efficiency.

Market Efficiency

• explain factors that affect a market’s efficiency