ECON 1020 Lecture Notes - Lecture 84: Hockey Stick, Idiosyncrasy, Systemic Risk

• School: University of Manitoba
• Department: Economics
• Course: ECON 1020
• Professor: Ryan A.Compton

Document Summary

If there is a price difference, we should identify that, and buy low and sell high to balance it. Arbitrage opportunities should close quickly because people should act quickly on it. Example: non-financial example: hockey stick everywhere is , at one store, hockey stick is . 99. Can arbitrage by buying the sticks for . 99, and sell them for . Stocks listed on two exchanges (two different cities: after the exchange rate, the stocks should be the same price. If higher or lower in one place over the other, you can buy in one place and sell in the other which is arbitrage. Risk: never know with certainty what future payments on an asset will be. Portfolio diversification: don"t put all your eggs in one basket . Involve in multiple portfolios to diversify some risk. An individual investment"s overall risk divided into two components: diversifiable risk ( idiosyncratic risk , 2.