Can The Market Add And Subtract? Mispricing In Tec

Recent equity carve-outs in U.S. tech noneogy stocks appear to surpass away a basic premise of financial supposition: equivalent summations have identical prices. In our 19982000 sample, holders of a sh ar of ac federation A ar expected to realize x shares of company B, but the price of A is less(prenominal) than x time the price of B. A prominent instance involves 3Com and Palm. Arbitrage does non eliminate this blatant mispricing due to short-sale constraints, so that B is overprice but expensive or impossible to rat short. assure from options prices shows that short- ing costs are extremely high, eliminating exploitable arbitrage opportunities. I. mental hospital There are two important significances of the efficient securities industry hypothesis. The first is that it is non easy to earn excess returns. The second is that prices are slouch in the sense that prices reflect fundamental value. This last mentioned implication is, in many ways, more important than the first. Do asset markets offer rational signals to the economy about where to We sink thanks sewer Cochrane, Douglas Diamond, Merle Erickson, Lou Harrison, J. B.

Hea- ton, Ravi Jagannathan, Arvind Krishnamurthy, Mark Mitchell, Todd Pulvino, Tuomo Vuol- teenaho, an anonymous referee, and seminar participants at the American finance As- sociation, Harvard Business prepare, the National Bureau of economic seek summation Pricing meeting, and the University of moolah finance eat for stabilising comments. We thank Joe Cornell and Mark Minichiello of Spin-off Advisors for data and helpful discus- sions. We th ank hound Fang Yu for excellent research as! sistance. Lamont gratefully ac- knowledges fight down from the Alfred P. Sloan Foundation, the Center for Research in Security Prices at the University of Chicago Graduate School of Business, the National Science Foundation, the Investment psychoanalyst Society of Chicago, and the connectedness for Investment Management and Research. [Journal of Political Economy, 2003, vol. 111, no. 2] 2003 by The University of Chicago. All...If you inadequacy to get a full essay, determine it on our website: OrderCustomPaper.com

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