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

82 Pages Posted: 7 Dec 2020 Last revised: 27 Aug 2021

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

Whether or not anomalies are due to mispricing or risk is an important question. We examine the causal effect of a novel shock to short selling, the Job and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003, on an extensive set of 182 anomalies. We find that anomalies become stronger after the dividend record months in the post-JGTRRA periods, driven by stronger mispricing in the dividend record months, mainly from the overpriced stocks. Overall, our results support the idea that anomalies are mostly due to mispricing, and the persistence of mispricing is likely caused by arbitrage barriers such as JGTRRA.

Keywords: Exogenous Short-Selling Shock; Mispricing; Anomalies; Market Efficiency; Dividend Taxation; 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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