Short Sale Constraints, Correlation and Market Efficiency

Christos Giannikos and Gousgounis Eleni ()
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Gousgounis Eleni: Stevens Institute of Technology, Hoboken, USA

The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 2, 18

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 (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/bejte-2016-0085

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