The Tesla Effect and the Mispricing of Special Purpose Acquisition Companies (SPACs)
11 Pages Posted: 9 Mar 2021
Date Written: March 9, 2021
Special purpose acquisition companies (SPACs) are publicly traded companies that raise funds through an initial public offering (IPO) for future acquisition. Because they are pools of capital with known value to be deployed, their exchange value is already predetermined prior to merger. However, many SPACs in 2020 trade at prices far above the $10 value, which can be interpreted as mispricing. Many mispriced SPACs are linked to electric vehicle-related businesses, which may be attributable to the “Tesla effect” that can represent behavioral bias, raising concern whether investors fully understand this novel investment opportunity.
Keywords: behavioral finance, mispricing, Tesla effect, SPACs
JEL Classification: G1
Suggested Citation: Suggested Citation