Short Sale Constraints, Correlation and Market Efficiency

33 Pages Posted: 28 Sep 2013 Last revised: 15 Sep 2017

See all articles by Christos I. Giannikos

Christos I. Giannikos

CUNY - Baruch College; CUNY - The Graduate Center

Eleni Gousgounis

U.S. Commodity Futures Trading Commission (CFTC)

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

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

Christos I. Giannikos

CUNY - Baruch College ( email )

Dept. of Eco & Fin
Box B10-225
New York, NY New York 10010
United States
646-312-3492 (Phone)
646-312-3451 (Fax)

CUNY - The Graduate Center ( email )

365 Fifth Avenue
New York,, NY 10016
United States

Eleni Gousgounis (Contact Author)

U.S. Commodity Futures Trading Commission (CFTC) ( email )

1155 21st Street NW
Washington, DC 20581
United States

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