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

Fellner-Röhling, Gerlinde; Theissen, Erik

doi:10.2139/ssrn.905270

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

EFA 2006 Zurich Meetings Paper

34 Pages Posted: 1 Jun 2006

See all articles by Gerlinde Fellner-Röhling

Gerlinde Fellner-Röhling

Ulm University - Department of Mathematics and Economics

Erik Theissen

University of Mannheim - Finance Area

Date Written: March 2006

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.

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

JEL Classification: C92, G14

Suggested Citation: Suggested Citation

Fellner-Röhling, Gerlinde and Theissen, Erik, Short Sale Constraints, Divergence of Opinion and Asset Values: Evidence from the Laboratory (March 2006). EFA 2006 Zurich Meetings Paper, Available at SSRN: https://ssrn.com/abstract=905270 or http://dx.doi.org/10.2139/ssrn.905270