Arbitrage in Equity Markets Robert Fernholz INTECH One Palmer Square Princeton, NJ 08542 March 26, 1998 Abstract Suppose that an equity market is composed of stocks that do not pay dividends. If the relative variance of each of the stocks with respect to the market is bounded away from zero, then there exist well-behaved portfolios that dominate the market portfolio. Key words: Arbitrage, equity market. Classification code: G11, C62. Copyright c 1998 Enhanced Investment Technologies, Inc. All rights reserved. 1