Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs
AbstractRecent equity carve-outs in U.S. technology stocks appear to violate a basic premise of financial theory: identical assets have identical prices. In our 19982000 sample, holders of a share of company A are expected to receive x shares of company B, but the price of A is less than x times the price of B. A prominent example involves 3Com and Palm. Arbitrage does not eliminate this blatant mispricing due to short-sale constraints, so that B is overpriced but expensive or impossible to sell short. Evidence from options prices shows that shorting costs are extremely high, eliminating exploitable arbitrage opportunities.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 111 (2003)
Issue (Month): 2 (April)
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Web page: http://www.journals.uchicago.edu/JPE/
Other versions of this item:
- Owen A. Lamont & Richard H. Thaler, . "Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs," CRSP working papers 528, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Owen A. Lamont & Richard H. Thaler, 2001. "Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs," NBER Working Papers 8302, National Bureau of Economic Research, Inc.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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