Entry of arbitrageurs need not increase with larger mispricing. Arbitrageurs trade mispriced assets and close positions once mispricing is corrected, seeking to minimize carry cost (shadow value of trading capital). More deployed arbitrage capital shortens the wait, lowering carry costs but also payoffs. Discretionary entry is profitable only in a “Goldilocks” region, where deployed capital is neither too low nor too high: enough capital is deployed to accelerate correction, while profits remain. The region’s upper bound follows from the condition that every sequence of entrants has a last entrant who cannot rely on subsequent discretionary entry.
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