Ownership Structure, Limits to Arbitrage, and Stock Returns: Evidence from Equity Lending Markets

Melissa Porras Prado (), Pedro Saffi and Jason Sturgess

The Review of Financial Studies, 2016, vol. 29, issue 12, 3211-3244

Abstract: We examine how institutional ownership structure gives rise to limits to arbitrage through its impact on short-sale constraints. Stocks with lower, more concentrated, short-term, and less passive ownership exhibit lower lending supply, higher costs of shorting, and higher arbitrage risk. These constraints limit the ability of arbitrageurs to take short positions and delay the correction of mispricing. Stocks with more concentrated ownership exhibit smaller announcement day reactions, larger post-earnings announcement drift, and an additional negative abnormal return of 0.47% in the week following a positive shorting demand shock.Received June 16, 2014; accepted June 8, 2016 by Editor Laura Starks.

JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (43)

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