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With regards to the Arbitrage pricing theory, where does the term ‘arbitrage’ come from?
assistant
The term “arbitrage” comes from the French word “arbitre” which means “adjudicator” or “judge”. In the early 20th century, arbitrage was used to describe the practice of buying stocks at low prices and selling them at high prices. The theory is that a stock will trade at a higher price than its intrinsic value if it is not traded frequently enough. The arbitrageur buys the stock and sells it at a higher price, thus making a profit. This profit is referred to as “arbitrage”.