Short Sale Constraints, Correlation and Market Efficiency
33 Pages Posted: 28 Sep 2013 Last revised: 15 Sep 2017
Date Written: September 13, 2017
Abstract
This paper models a market where short sales are prohibited and investors have heterogeneous beliefs on asset values. We show that short sale constraints may cause overpricing, the magnitude of which depends on not only investors' opinion dispersion on the value of the particular asset, but also on its correlation to other assets, as well as, the investors' opinion dispersion for the values of those other assets.
Keywords: short sale constraints, opinion dispersion, correlation, market efficiency
JEL Classification: G10, G14
Suggested Citation: Suggested Citation
Giannikos, Christos I. and Gousgounis, Eleni, Short Sale Constraints, Correlation and Market Efficiency (September 13, 2017). Available at SSRN: https://ssrn.com/abstract=2331715 or http://dx.doi.org/10.2139/ssrn.2331715
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