Short sale constraints, divergence of opinion and asset prices: Evidence from the laboratory

Gerlinde Fellner-Röhling () and Erik Theissen

Journal of Economic Behavior & Organization, 2014, vol. 101, issue C, 113-127

Abstract: The overvaluation hypothesis (Miller, 1977) predicts that (a) stocks are overvalued in the presence of short selling restrictions and that (b) the overvaluation increases in the degree of divergence of opinion. We design an experiment that allows us to test these predictions in the laboratory. The results indicate that prices are higher with short selling constraints, but the overvaluation does not increase in the degree of divergence of opinion. We further find that trading volume is lower and quoted bid-ask spreads tend to be higher when short sale restrictions are imposed.

Keywords: Overvaluation hypothesis; Short selling constraints; Divergence of opinion (search for similar items in EconPapers)
JEL-codes: C92 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:101:y:2014:i:c:p:113-127

DOI: 10.1016/j.jebo.2014.02.010

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