Explain the Difference Between Risky and Riskless Arbitrage

question 128

Essay

Explain the difference between risky and riskless arbitrage.

Comprehend the methodologies and implications of regression tests in CAPM.

Describe the extension and predictive power of Fama-French three-factor and multifactor models over CAPM.

Understand the concepts of liquidity, market inefficiency, and the impact of liquidity on asset pricing.

Grasp the relationship between macroeconomic factors, including GDP growth, and returns on various style portfolios.

---

Definitions:

Best Evidence Rule

A legal principle requiring the original document or primary evidence to be presented in court when its contents are disputed.

FACT Act

The Fair and Accurate Credit Transactions Act (FACT Act) is a U.S. legislation aimed at enhancing the accuracy of consumers' credit-related information and giving consumers more ability to combat identity theft.

Identity Theft

Using a computer to steal confidential information to clean out a person’s bank account, to run up credit card debt, to divert cash transfers, and to disrupt the financial and personal life of the victim.

Statute of Frauds

A legal principle requiring certain types of contracts to be written and signed to be legally enforceable, aiming to prevent fraud and misunderstandings.