Does the Market Anticipate? Can it? Should it?
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 conflict between 'no arbitrage', 'information efficiency' and 'risk anticipation', and the role of the rate of 'signal-to-noise' versus that of 'current return', are exposed in a concrete, practically relevant, setting.
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