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(a) Identify and explain ONE incentive and ONE limitation for arbitrageurs to promote market efficiency....

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Finance

(a) Identify and explain ONE incentive and ONE limitation for arbitrageurs to promote market efficiency. (4 marks)

(b) Sam had dinner in a restaurant yesterday and found Mr. Li Ka Ka, the Chairman of Cheung Kung (a listed property company), sat next to him. He overheard Mr. Li saying that Cheung Kung wil acquire another small property developer with an attractive price very soon. Sam bought shares of Cheung Kung on the next day. Two days later, Cheung Kung announced the acquisition and Sam gained 20% in one week from the investment. The market dropped 2% in the same period. Explain why the above case does NOT violate semi-strong form efficient market. (4 marks)

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