What happens in an efficient market regarding arbitrage opportunities?

In an efficient market, arbitrage opportunities are quickly eliminated due to the actions of investors seeking to take advantage of price discrepancies. When a security is mispriced—meaning it is priced differently in different markets or relative to its fundamental value—arbitrageurs will act swiftly to buy the undervalued asset and sell the overvalued one. This buying and selling work to correct the prices involved until they reflect their true value, thus removing the arbitrage opportunity.

In an efficient market, the presence of information leads to adjustments in asset prices almost instantaneously. As a result, any potential profit from arbitrage is short-lived because as soon as one investor notices the discrepancy and acts on it, others will follow, correcting the prices so that they align with their fundamental values. This dynamic is a hallmark of market efficiency, where prices fully reflect all available information.