Stock Mispricing, Resale Options, and Differences of Opinion

Kai-Min Huang, I-Doun Kuo and Rong-Tsorng Wang

Emerging Markets Finance and Trade, 2025, vol. 61, issue 8, 2316-2337

Abstract: Emerging stock markets are dominated by overconfident individual investors and in these markets short-sale constraints are frequently used to promote market stability. The unique market participants and regulations may influence the formation of stock prices and potentially lead to stock mispricing. This study examines the interactive effect between differences of opinion and short-sale constraints on mispricing in Taiwan markets. We find robust evidence supporting the resale option theory. The results include the subsample, volatility of mispricing errors, its dynamic relation, and is robust to controls for firm attributes. This study confirms that the demand of resale options from overconfident investors causes stock mispricing in a market with short-sale constraints, and this mispricing relates to stock volume and stock volatility.

Date: 2025
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DOI: 10.1080/1540496X.2024.2449464

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