Trading Restrictions and Stock Prices

44 Pages Posted: 17 Mar 2006

See all articles by Robin M. Greenwood

Robin M. Greenwood

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 4, 2007


Firms can manipulate their stock price by limiting the ability of their investors to sell. I examine a series of corporate events in Japan in which firms actively reduced their float - the fraction of shares available to trade - for periods of one to three months, locking investors into their long positions. Standard theory predicts that the greater are the restrictions, the greater is the impact of trading on price. Particularly severe restrictions are associated with positive event returns of over 30 percent, most of which are reversed when the restrictions are removed. Firms are more likely to issue equity or redeem convertible debt during the restricted period, suggesting strong incentives for manipulation.

Keywords: Asset Pricing, Float, Short sales constraints, Behavioral Finance, Limits to arbitrage

JEL Classification: G10, G11, G13

Suggested Citation

Greenwood, Robin M., Trading Restrictions and Stock Prices (January 4, 2007). HBS Finance Working Paper No. 05-079. Available at SSRN: or

Robin M. Greenwood (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6979 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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