Can The Market Add And Subtract? Mispricing In Tec

Recent equity carve-outs in U.S. tech no.ogy stocks appear to occur away a basic premise of financial system: equivalent summations have identical prices. In our 19982000 sample, holders of a sh ar of ac federation A are expected to absorb x shares of company B, but the price of A is little than x time the price of B. A prominent spokesperson involves 3Com and Palm. Arbitrage does non eliminate this blatant mispricing due to short-sale constraints, so that B is overprice but expensive or impossible to grass short. assure from options prices shows that short- ing costs are extremely high, eliminating exploitable arbitrage opportunities. I. adit There are two important significances of the efficient grocery hypothesis. The first is that it is non easy to earn excess returns. The second is that prices are slouch in the sense that prices reflect fundamental value. This latter(prenominal) implication is, in many ways, more important than the first. Do asset markets of fer rational signals to the economy about where to We have thanks sewer Cochrane, Douglas Diamond, Merle Erickson, Lou Harrison, J. B.

Hea- ton, Ravi Jagannathan, Arvind Krishnamurthy, Mark Mitchell, Todd Pulvino, Tuomo Vuol- teenaho, an anonymous referee, and seminar participants at the American finance As- sociation, Harvard Business prepare, the National Bureau of scotch seek summation Pricing meeting, and the University of dinero finance dejeuner for encouraging comments. We thank Joe Cornell and Mark Minichiello of Spin-off Advisors for data and helpful discus- sions. We thank hound Fang Yu for excel lent research assistance. Lamont gratefully ! ac- knowledges stick up from the Alfred P. Sloan Foundation, the Center for Research in Security Prices at the University of Chicago Graduate School of Business, the National Science Foundation, the Investment analyst Society of Chicago, and the connectedness for Investment Management and Research. [Journal of Political Economy, 2003, vol. 111, no. 2] 2003 by The University of Chicago. All...If you inadequacy to get a full essay, install it on our website: OrderCustomPaper.com

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