Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs
Recent equity carve-outs in U.S. technology stocks appear to violate a basic premise of financial theory: identical assets have identical prices. In our 19982000 sample, holders of a share of company A are expected to receive x shares of company B, but the price of A is less than x times the price of B. A prominent example involves 3Com and Palm. Arbitrage does not eliminate this blatant mispricing due to short-sale constraints, so that B is overpriced but expensive or impossible to sell short. Evidence from options prices shows that shorting costs are extremely high, eliminating exploitable arbitrage opportunities.
Year of publication: |
2003
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Authors: | Lamont, Owen A. ; Thaler, Richard H. |
Published in: |
Journal of Political Economy. - University of Chicago Press. - Vol. 111.2003, 2, p. 227-268
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Publisher: |
University of Chicago Press |
Saved in:
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