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

Gerlinde Fellner-Röhling () and Erik Theissen

No 11-03, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

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 bid-ask spreads are 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: 2011
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Related works:
Working Paper: Short Sale Constraints, Divergence of Opinion and Asset Values: Evidence from the Laboratory (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1103

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