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Short Sale Constraints, Divergence of Opinion and Asset Values: Evidence from the Laboratory

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  • Gerlinde Fellner

    ()

  • Erik Theissen

    ()

Abstract

The overvaluation hypothesis (Miller 1977) predicts that a) stocks are overvalued when there are short selling restrictions and that b) the overvaluation is increasing in the degree of divergence of opinion. We design an experiment that allows us to test these predictions in the laboratory. Our results support the hypothesis that prices are higher in the presence of short selling constraints. The overvaluation does not depend on the degree of divergence of opinion.

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File URL: http://www.econ-pol.unisi.it/labsi/labsi_paper/labsi9.pdf
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Bibliographic Info

Paper provided by University of Siena in its series Labsi Experimental Economics Laboratory University of Siena with number 009.

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Date of creation: Sep 2006
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Handle: RePEc:usi:labsit:009

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Keywords: overvaluation hypothesis; short selling constraints; divergence of opinion;

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  1. Eric C. Chang & Joseph W. Cheng & Yinghui Yu, 2007. "Short-Sales Constraints and Price Discovery: Evidence from the Hong Kong Market," Journal of Finance, American Finance Association, vol. 62(5), pages 2097-2121, October.
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Cited by:
  1. Uri Ben-Zion & Ido Erev & Ernan Haruvy & TAL SHAVIT, 2007. "Under-Diversification And The Role Of Best Reply To Pattern," Working Papers 0707, Ben-Gurion University of the Negev, Department of Economics.
  2. Shahrabani, Shosh & Shavit, Tal & Benzion, Uri, 2008. "Short-selling and the WTA-WTP gap," Economics Letters, Elsevier, vol. 99(1), pages 131-133, April.
  3. Sascha F├╝llbrunn & Tibor Neugebauer, 2012. "Margin Trading Bans in Experimental Asset Markets," Jena Economic Research Papers 2012-058, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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