Short Sale Constraints, Correlation and Market Efficiency

Christos Giannikos; Eleni Gousgounis

doi:10.1515/bejte-2016-0085

Article

Short Sale Constraints, Correlation and Market Efficiency

Christos Giannikos and Eleni Gousgounis

Published/Copyright: May 15, 2018

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From the journal The B.E. Journal of Theoretical Economics Volume 18 Issue 2

Abstract

This paper models a market where short sales are prohibited and investors have heterogeneous beliefs on asset values. We show that short sale constraints may cause overpricing, the magnitude of which depends on not only investors’ opinion dispersion on the value of the particular asset, but also on its correlation to other assets, as well as, the investors’ opinion dispersion for the values of those other assets.

Keywords: short sale constraints; opinion dispersion; correlation; market efficiency

JEL Classification: G10; G14

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Published Online: 2018-05-15

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Articles in the same Issue

https://doi.org/10.1515/bejte-2016-0085

Keywords for this article

short sale constraints; opinion dispersion; correlation; market efficiency