Short Sale Constraints, Divergence of Opinion and Asset Values: Evidence from the Laboratory

34 Pages Posted: 1 Jun 2006

See all articles by Gerlinde Fellner-Röhling

Gerlinde Fellner-Röhling

University of Ulm - Department of Mathematics and Economics

Erik Theissen

University of Mannheim - Finance Area

Date Written: March 2006

Abstract

The overvaluation hypothesis (Miller 1977) predicts that a) stocks are overvalued when there are short selling restrictions and that b) the overvaluation is increasing in the degree of divergence of opinion. We design an experiment that allows us to test these predictions in the laboratory. Our results support the hypothesis that prices are higher in the presence of short selling constraints. The overvaluation does not depend on the degree of divergence of opinion.

Keywords: overvaluation hypothesis, short selling constraints, divergence of opinion

JEL Classification: C92, G14

Suggested Citation

Fellner-Röhling, Gerlinde and Theissen, Erik, Short Sale Constraints, Divergence of Opinion and Asset Values: Evidence from the Laboratory (March 2006). EFA 2006 Zurich Meetings Paper. Available at SSRN: https://ssrn.com/abstract=905270 or http://dx.doi.org/10.2139/ssrn.905270

Gerlinde Fellner-Röhling

University of Ulm - Department of Mathematics and Economics ( email )

Helmholzstrasse
Ulm, D-89081
Germany

Erik Theissen (Contact Author)

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
197
rank
151,106
Abstract Views
1,106
PlumX Metrics