Distribution of Ownership, Short Sale Constraints, and Market Efficiency: Evidence from Cross-Listed Stocks

Forthcoming in Financial Management

51 Pages Posted: 15 Mar 2010 Last revised: 7 Jan 2014

See all articles by Louis Gagnon

Louis Gagnon

Queen's University - Smith School of Business

Jonathan L. Witmer

Bank of Canada

Date Written: December 20, 2013

Abstract

We investigate the interplay between the distribution of ownership, short sale constraints, and market efficiency from the perspective of US cross-listed stocks domiciled in Canada during the short sale ban of 2008. Using minute-by-minute data, we show that prices in the two markets remained surprisingly close to parity during the ban. However, we document a more significant rise in bid ask spreads in the US during this period, driven primarily by an increase on the ask side of the market due to the relative scarcity of long sellers in the US. This caused a delay in the speed at which prices were able to adjust to bad news in the US relative to Canada, and a slight premium in the US when prices were moving down.

Keywords: Short sale restrictions; Cross-listed stocks; Market efficiency; Limits to arbitrage; Location of trading; Ownership concentration

JEL Classification: F30, G01, G18, G20

Suggested Citation

Gagnon, Louis Joseph and Witmer, Jonathan L., Distribution of Ownership, Short Sale Constraints, and Market Efficiency: Evidence from Cross-Listed Stocks (December 20, 2013). Forthcoming in Financial Management, Available at SSRN: https://ssrn.com/abstract=1569114 or http://dx.doi.org/10.2139/ssrn.1569114

Louis Joseph Gagnon (Contact Author)

Queen's University - Smith School of Business ( email )

Kingston, Ontario K7L 3N6
Canada
613-533-6707 (Phone)
613-533-2321 (Fax)

Jonathan L. Witmer

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

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