Arbitrageurs deliberately conceal exploitable market inefficiencies because disclosure destroys them.

Evidence

The testimony of arbitrageurs (in, for example, my interview with David Shaw) is that in addition to the anomalies discussed in the literature of financial economics that are exploitable market inefficiencies that are not publicly known. Naturally, arbitrageurs are reluctant to say exactly what they are: others’ exploitation of them would very likely reduce or eliminate them. Even in 1965 it was clear to James Lorie, founder of the Center for Research in Security Prices, that such anomalies might exist: ”… there is a haunting fear that those with the best arguments [against the random-walk hypothesis] are silently sunning and swimming at St. Tropez” (Lone 1965, p. 18). — Donald MacKenzie, An Engine, Not a Camera, 457

Categorization

• XREF: Doomsday argument for why published anomalies decay — connects to the broader performativity thesis that public knowledge of a model changes the behavior it describes. — connects to: Arbitrage is the chief channel achieving Barnesian performativity in finance — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1209; Markets conceal their own mechanisms of visibility and knowledge production. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 283; Limited arbitrage capital can force abandonment of even certain-profit trades — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1217 (+2 more)

Broader Connections

• Constrained arbitrage allows finance-theory models to diverge from actual prices. #expands (0.78) — Donald MacKenzie, An Engine, Not a Camera, 1213
• Arbitrage is the chief channel achieving Barnesian performativity in finance #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1209
• Limited arbitrage capital can force abandonment of even certain-profit trades #complicates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1217
• Markets conceal their own mechanisms of visibility and knowledge production. #expands (0.72) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 283
• The mafioso profits from deliberately injecting distrust into markets #complicates (0.72)