Market Efficiency and Limits to Arbitrage: Evidence from the Volkswagen Short Squeeze
88 Pages Posted: 1 Jun 2017 Last revised: 17 Apr 2019
Date Written: April 14, 2019
On October 26, 2008, Porsche announced its domination plan for Volkswagen. This disclosure was followed by a short squeeze that briefly made Volkswagen the most valuable listed company in the world. Using these events as a unique experimental setting, we argue that the implementation of securities regulation has not been effective in Germany. Using hand-collected and high-frequency data we provide the first detailed academic study of the Porsche-VW short squeeze and show that it significantly impeded price discovery and market efficiency. This is important because without efficient securities markets, projects such as the EU's Capital Markets Union cannot be successful.
Keywords: Limits to arbitrage, short selling, stock cornering
JEL Classification: G14, G28, G32
Suggested Citation: Suggested Citation