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arXiv · 2603.02187

Does the Market Anticipate? Can it? Should it?

Kangda Ken Wren
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Abstract

We explore a nuance to 'no arbitrage': it can be suboptimal to act upon an arbitrage immediately; in such cases optimised trading can suppress the anticipation of predictable risky outcomes, creating an apparent Status Quo Bias. This is shown through continuous-time asset-pricing under model- or event-risk. Unlike standard treatments, we allow pre-horizon risk-outcome disclosures; the technical challenges are overcome by results from the 'weak viability' and 'side/inside information' literature. The tension between 'no arbitrage', 'information efficiency' and 'risk anticipation', and the interplay between the rate of 'signal-to-noise' and of 'current return', are exposed in a concrete, practically relevant, setting.

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Kangda Ken Wren. 2026-03-02. Does the Market Anticipate? Can it? Should it?. https://arxiv.org/abs/2603.02187

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