We argue that arbitrage is limited if rational traders face uncertainty about when their peers will exploit a common arbitrage opportunity. This synchronization risk{\textemdash}which is distinct from noise trader risk and fundamental risk{\textemdash}arises in our model because arbitrageurs become sequentially aware of mispricing and they incur holding costs. We show that rational arbitrageurs {\textquotedblleft}time the market{\textquotedblright} rather than correct mispricing right away. This leads to delayed arbitrage. The analysis suggests that behavioral influences on prices are resistant to arbitrage in the short and intermediate run.
}, year = {2002}, journal = {Journal of Financial Economics}, volume = {66}, number = {2-3}, pages = {341-360}, note = {Models the Wile E. Coyote effect, since synchronization risk leads to market timing by arbitrageurs and delays arbitrage.
}, language = {eng}, }