Limits to Arbitrage when Market Participation Is Restricted

There is an extensive literature claiming that it is often difficultto make use of arbitrage opportunities in financial markets. Thispaper provides a new reason why existing arbitrage opportunitiesmight not be seized. We consider a world with short-lived securities,no short-selling constraints and no transaction costs. We show thatto exploit all existing arbitrage opportunities, traders should payattention to all financial markets simultaneously. It gives a generalresult stating that failure to do so will leave some arbitrage oppor-tunies unexploited with probability one.