Abstract

http://ssrn.com/abstract=1509650
 
 

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Ownership Structure, Limits to Arbitrage and Stock Returns: Evidence from Equity Lending Markets


Pedro A. C. Saffi


University of Cambridge

Jason Sturgess


DePaul University

March 15, 2012

IESE Business School Working Paper No. 836

Abstract:     
We examine how institutional ownership structure gives rise to limits to arbitrage through its impact on short-sale constraints. Stocks with lower or more concentrated institutional ownership exhibit greater borrowing costs, higher recall risk and increased levels of arbitrage risk. The tighter short-sale constraints raise the cost - and required return - for arbitrageurs to take short positions in a stock. We show that an increase in shorting demand for stocks in the top quintile of ownership concentration is associated with negative abnormal returns of 0.77% in the following week relative to stocks in the lowest quintile.

Number of Pages in PDF File: 45

Keywords: Limits to arbitrage, short sales, ownership structure, arbitrage risk, equity lending.

JEL Classification: G10, G11, G14, G18, G28, G32

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Date posted: November 21, 2009 ; Last revised: October 20, 2012

Suggested Citation

Saffi, Pedro A. C. and Sturgess, Jason, Ownership Structure, Limits to Arbitrage and Stock Returns: Evidence from Equity Lending Markets (March 15, 2012). IESE Business School Working Paper No. 836. Available at SSRN: http://ssrn.com/abstract=1509650 or http://dx.doi.org/10.2139/ssrn.1509650

Contact Information

Pedro A. C. Saffi (Contact Author)
University of Cambridge ( email )
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
HOME PAGE: http://www.pedrosaffi.com
Jason Sturgess
DePaul University ( email )
1 East Jackson Blvd.
Chicago, IL 60604
United States
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