Mispricing and Anomalies: An Exogenous Shock to Short Selling from JGTRRA

70 Pages Posted: 7 Dec 2020 Last revised: 26 May 2023

See all articles by Yufeng Han

Yufeng Han

University of North Carolina (UNC) at Charlotte - Finance

Yueliang (Jacques) Lu

University of North Carolina (UNC) at Charlotte - Finance

Weike Xu

Clemson University - Department of Finance

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Date Written: December 4, 2020

Abstract

We study the causal effect of short-sale constraints on anomalies by examining an extensive set of 182 anomalies. Our identification strategy relies on a persistent, robust and plausibly exogenous shock to short-selling supply induced by the dividend tax law change in the Job and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003. We find that anomalies become stronger following the dividend record months, driven by stronger overpricing as opposed to underpricing in the post-JGTRRA periods. Interestingly, while the shock magnifies returns to most anomaly types, we find that valuation anomalies seem unlikely to be driven by mispricing.

Keywords: Exogenous short-selling shock, JGTRRA, mispricing, anomalies, difference-in-differences

JEL Classification: G4, G12, G14, G18

Suggested Citation

Han, Yufeng and Lu, Yueliang and Xu, Weike and Zhou, Guofu, Mispricing and Anomalies: An Exogenous Shock to Short Selling from JGTRRA (December 4, 2020). Available at SSRN: https://ssrn.com/abstract=3730653 or http://dx.doi.org/10.2139/ssrn.3730653

Yufeng Han

University of North Carolina (UNC) at Charlotte - Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Yueliang Lu

University of North Carolina (UNC) at Charlotte - Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

HOME PAGE: http://JacquesYL.github.io

Weike Xu (Contact Author)

Clemson University - Department of Finance ( email )

425 Sirrine Hall
Clemson, SC 29634
United States

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

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