Does the Market Anticipate? Can it? Should it?
Abstract
We explore a nuance to 'no arbitrage' in relation to 'information efficiency': acting immediately on an arbitrage is sometimes suboptimal; in such cases optimised trading can suppress the anticipation of predictable risk-outcomes, thereby creating an apparent Status Quo Bias, with Momentum and Low-Risk effects. This is shown in continuous time under model- or event-risk, where, unlike existing approaches, we allow pre-horizon risk-resolution and Risk-Neutral Equivalent pricing, with the technical challenges overcome through results from the 'weak viability' and 'side/inside information' literature. Thus the tension between 'no arbitrage', 'information efficiency' and 'risk-anticipation' is exposed and treated in a practically relevant setting.
Keywords
Cite
@article{arxiv.2603.02187,
title = {Does the Market Anticipate? Can it? Should it?},
author = {Kangda Ken Wren},
journal= {arXiv preprint arXiv:2603.02187},
year = {2026}
}
Comments
32 pages, Title/Abstract (1) Main (19), Appendix (8) References (3), Declaration (1)