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Jens 'n' Frens |
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You know, I thought of something relevant that is very much not mentioned in Rubenstein's piece on market efficiency, and that is that the market can get rid of inefficiencies in an efficient manner even if they aren't big enough to cover trading costs and thereby support a direct arbitrage. It works the same way as much else in economics does: I see a Monday effect that I believe will persist, but that I believe will be small enough that I can't simply sell Friday afternoon and buy Monday afternoon and expect to make money. What I can do, though, is decide to postpone a purchase I'd otherwise make Friday afternoon until the next Monday, or move up a planned sale. In each case, there's really no trading cost associated; the only cost is in the urgency of whatever makes me want to do what I want to do. (Presumably if I want to sell, there's a reason, and it's a reason to sell now.) |
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