Short Sale Constraints, Correlation and Market Efficiency

This paper models a market where short sales are prohibited and investors have heterogeneous beliefs on asset values. We show that short sale constraints may cause overpricing, the magnitude of which depends on not only investors’ opinion dispersion on the value of the particular asset, but also on...

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Bibliographic Details
Published in:The B.E. journal of theoretical economics 2018, Vol.18 (2), p.243
Main Authors: Giannikos, Christos, Gousgounis, Eleni
Format: Article
Language:English
Subjects:
Assets
correlation
Economic theory
G10
G14
Investors
market efficiency
opinion dispersion
Sales
short sale constraints
Short sales
Stock prices
Citations: Items that this one cites
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Summary:This paper models a market where short sales are prohibited and investors have heterogeneous beliefs on asset values. We show that short sale constraints may cause overpricing, the magnitude of which depends on not only investors’ opinion dispersion on the value of the particular asset, but also on its correlation to other assets, as well as, the investors’ opinion dispersion for the values of those other assets.
ISSN:1935-1704
2194-6124
1935-1704
DOI:10.1515/bejte-2016-0085