I was curious as to some examples of them. One schweser question did mention ‘a price decline due to an institutional block of shares being sold’, but i cant find any others. thanks
CFAI isn’t any better, in terms of examples - and they have a section called, “Chronic and Acute Inefficiencies.” I’ll just tell you what the text says. "Acute inefficiencies are the discernable opportunities that can be exploited by accessible arbitrage. With acute inefficiencies the surrounding uncertainties can be hedged or minimized. Their resolution occurs quickly, well within the relevant time frame of arbitraging participants.” That’s it. Three sentences and they move to chronic inefficiencies. I guess they don’t give examples because virtually any mispriced asset/instrument is considered acute if it is profitably exploited. I’m guessing because the CFAI text doesn’t provide guidance.
Does that mean that acute refers to the frequencies that the inefficiencies appear and therefore the degree to which they can be exploited on a long term basis, or is that c?ronic.
I haven’t studied this section yet, but I believe acute refers to the degree of the mispricing, not the frequency. As corynaka mentions, Schweser covers an example in the equity markets because of a block trade. The block trade will bring the price down, but is not where the market would trade in smaller lots. Another example is in currencies with triangular arbitrage when the price of one currency becomes distorted relative to two others. Another example is when a convertible bond trades outside the reasonable bounds of the underlying price of the equity. I could be totally wrong b/c I haven’t picked up a book yet, but I did stay and a holiday inn express last night. DG
No examples of acute inefficiencies? Or we should assume it’s always Chronic in the exam?
deriv108 Wrote: ------------------------------------------------------- > No examples of acute inefficiencies? > > Or we should assume it’s always Chronic in the > exam? Come up with your own. Difference between market and OTC pricing. Difference between cash and synthetic. Difference between credit spreads and CDS. et cetera. Just another thing that if they test you know it is not from the book.