Nonlinear limits to arbitrage
研究套利活动与错误定价之间的非线性关系，发现错误定价较小时套利增加，但错误定价过大时因资金约束加剧而套利减少，形成倒U型关系。
Abstract We study the nonlinear limits to arbitrage in a model. When mispricing is small, arbitrage activity increases with mispricing because of the higher cost‐adjusted return. However, at high levels of mispricing, arbitrageurs are deterred by larger mispricing as funding constraints become more binding. Testing the model predictions on the index spot‐futures arbitrage with a Markov‐switching model, we document an inverse U‐shaped relationship between mispricing and arbitrage activity. The extreme regime is with the largest mispricing but least arbitrage activity, and coincides with the market turmoil, suggesting that funding constraints become the main driver behind the limit to arbitrage.