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Distribution of Ownership, Short Sale Constraints, and Market Efficiency: Evidence from Cross‐Listed Stocks
Author(s) -
Gag Louis,
Witmer Jonathan
Publication year - 2014
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12073
Subject(s) - distribution (mathematics) , business , monetary economics , market efficiency , economics , financial economics , mathematics , mathematical analysis
We investigate the interplay between the distribution of ownership, short sale constraints, and market efficiency. Using minute‐by‐minute data during the period surrounding the short sale ban of 2008, we demonstrate that short sale restrictions cause price disparities among cross‐listed stocks when ownership in the stocks is distributed unevenly across the two markets. The stocks tend to trade at a premium in the market where long sellers are relatively scarcer, which reduces the speed at which prices adjust to bad news. The premium is driven primarily by an increase on the ask side of the market where ownership is thinner, is only evident when prices are moving down, and disappears quickly.