Primes and Scores: An Essay on Market Imperfections
AbstractThis paper investigates the reported relative mispricing of primes and scores to the underlying stock. Given transaction costs, the authors establish arbitrage-based bounds on prime and score prices. They then develop a new nonparametric statistical technique to test whether prime and score prices violate these bounds. They find that prime and score prices do exceed stock prices, and often by a considerable amount. They demonstrate that this increased value is most likely due to the score's ability to save on the costs of dynamic hedging. They also show how short sale and trust size constraints impede the ability to arbitrage price disparities. Copyright 1989 by American Finance Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 44 (1989)
Issue (Month): 5 (December)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- John R. Ezzell & James A. Miles & J. Harold Mulherin, 2001. "Is there Really a When-Issued Premium?," Claremont Colleges Working Papers 2001-34, Claremont Colleges.
- Michael R. Powers & David M. Schizer & Martin Shubik, 2003.
"Market Bubbles and Wasteful Avoidance: Tax and Regulatory Constraints on Short Sales,"
Cowles Foundation Discussion Papers
1413, Cowles Foundation for Research in Economics, Yale University.
- David M. Schizer & Michael R. Powers & Martin Shubik, 2003. "Market Bubbles and Wasteful Avoidance: Tax and Regulatory Constraints on Short Sales," Yale School of Management Working Papers ysm356, Yale School of Management.
- Gagnon, Louis & Karolyi, G. Andrew, 2004.
"Multi-market Trading and Arbitrage,"
Working Paper Series
2004-9, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Charupat, Narat & Prisman, Eliezer Z., 1997. "Financial Innovations and Arbitrage Pricing in Economies with Frictions: Revisited," Journal of Economic Theory, Elsevier, vol. 74(2), pages 435-447, June.
- Schultz, Paul & Shive, Sophie, 2010. "Mispricing of dual-class shares: Profit opportunities, arbitrage, and trading," Journal of Financial Economics, Elsevier, vol. 98(3), pages 524-549, December.
- Huckins, Nancy White, 1995. "Repackaging cashflows and the creation of value: The case of primes and scores," International Review of Financial Analysis, Elsevier, vol. 4(2-3), pages 123-142.
- Henderson, Brian J. & Pearson, Neil D., 2011. "The dark side of financial innovation: A case study of the pricing of a retail financial product," Journal of Financial Economics, Elsevier, vol. 100(2), pages 227-247, May.
- Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci, 2012. "Put-Call Parity and Market Frictions," Working Papers 447, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.