Short Sale Constraints and Stock Misvaluation: Daily Evidence on the Nasdaq
AbstractIn this paper I investigate the impact of short sale constraints on stock returns using Regulation SHO data on the NASDAQ in 2005. Extant theories suggest that removing the bid-price test rule on the NASDAQ for the so called ‘pilot stock’ would mitigate stock overvaluation. The results in this paper, however, show that lifting the bid-price test rule on the NASDAQ goes beyond correcting such overvaluation. Prices of stocks with the high degree of investor disagreement tend to be depressed relative to prices of stocks with low degree of investor disagreement during the sample period. This surprising result raises the concern that SEC’s recent decision of removing the bid-price test rule for NASDAQ listed securities may not be considered as an optimal policy, if such undervaluation is driven by ‘predatory’ short sellers’ price manipulation.
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Bibliographic InfoArticle provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.
Volume (Year): 62 (2009)
Issue (Month): 4 ()
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Bid-Price Test Rule; Pilot Program; Regulation SHO; Short Sales; Short Sale Constraints; Stock Misvaluation;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jarrow, Robert A, 1980. " Heterogeneous Expectations, Restrictions on Short Sales, and Equilibrium Asset Prices," Journal of Finance, American Finance Association, vol. 35(5), pages 1105-13, December.
- Mark Mitchell & Todd Pulvino & Erik Stafford, 2002. "Limited Arbitrage in Equity Markets," Journal of Finance, American Finance Association, vol. 57(2), pages 551-584, 04.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
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