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Distribution of Ownership, Short Sale Constraints, and Market Efficiency: Evidence from Cross-Listed Stocks

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  • Louis Gagnon
  • Jonathan Witmer

Abstract

type="main"> We investigate the interplay between the distribution of ownership, short sale constraints, and market efficiency. Using minute-by-minute data during the period surrounding the short sale ban of 2008, we demonstrate that short sale restrictions cause price disparities among cross-listed stocks when ownership in the stocks is distributed unevenly across the two markets. The stocks tend to trade at a premium in the market where long sellers are relatively scarcer, which reduces the speed at which prices adjust to bad news. The premium is driven primarily by an increase on the ask side of the market where ownership is thinner, is only evident when prices are moving down, and disappears quickly.

Suggested Citation

  • Louis Gagnon & Jonathan Witmer, 2014. "Distribution of Ownership, Short Sale Constraints, and Market Efficiency: Evidence from Cross-Listed Stocks," Financial Management, Financial Management Association International, vol. 43(3), pages 631-670, September.
    • Handle: RePEc:bla:finmgt:v:43:y:2014:i:3:p:631-670
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    File URL: http://hdl.handle.net/10.1111/fima.12073
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    2. Jimmy Lockwood & Larry Lockwood & Sie Ting Lau, 2016. "Lost In Translation: Which Stock Prices Bear The Burden To Adjust To Exchange Rates?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(3), pages 263-290, September.

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