In the Singapore stock market, we can observe numerous cases of market mispricing that create arbitrage opportunities for investors. This phenomenon occurs in several instances where the value of listed subsidiaries or associates is not properly reflected in the valuations of their separately listed parent entities.
In theory, financial markets operate under the principle of price discovery. This is the continuous, dynamic process of determining an asset’s spot price through the interaction of buyers and sellers, balancing supply and demand. It enables market participants to establish fair value by incorporating information, such as financial data and news, into bids and offers.
However, real-world markets often deviate from the ideal world due to market friction. This refers to any impediment to trade, including transaction costs, information gaps and regulatory constraints.
