Describe the concept of Limits to Arbitrage and its importance.

Limits to Arbitrage refers to the idea that even when a mispricing of assets exists, it may not be possible to exploit this for profit due to various constraints. These constraints include transaction costs, risk, market regulations, and the specific nature of the mispricing. This concept is important as it explains why market inefficiencies can persist and why arbitrage opportunities are not always immediately or fully exploited, influencing the effectiveness and risk of arbitrage strategies.

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Concept Limits to Arbitrage

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