ON THE PRICING OF DUAL CLASS STOCKS: EVIDENCE FROM BERKSHIRE HATHAWAY

Ling T. He and K. Michael Casey

The International Journal of Business and Finance Research, 2011, vol. 5, issue 1, 103-112

Abstract: This study focuses on determining whether short-term market inefficiencies exist that can be periodically exploited by investors. Berkshire Hathaway’s dual class stock with differential voting rights and one- way conversion option provides a unique opportunity to investigate this issue while controlling for other exogenous variables that could bias the findings. Given the investor attention directed toward Berkshire Hathaway, and the company’s famous CEO Warren Buffett, this company’s stock should always trade in an efficient market. The results suggest that Berkshire Hathaway class B shares tend to have significantly higher opening prices and Berkshire Hathaway class A shares tend to have higher closing prices, although both A and B shares have similar average daily returns. Price dynamics may create unique arbitrage opportunities for investors. However, the higher overnight returns for B shares may be offset by higher volatility embedded in the B shares.

Keywords: Dual class stock; market efficiency; asset pricing; volatility (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2011
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