Heterogeneous Beliefs, Short-Sale Constraints and the Closed-End Fund Puzzle

2011 ◽  
Author(s):  
Zhiguang Cao ◽  
Richard D. F. Harris ◽  
Junmin Yang
Keyword(s):  
Heterogeneous Beliefs ◽  
Short Sale Constraints ◽  
Short Sale

Heterogeneous Beliefs and Momentum Profits

2009 ◽  
Vol 44 (4) ◽  
pp. 795-822 ◽  
Author(s):  
Michela Verardo
Keyword(s):  
Stock Returns ◽  
Information Diffusion ◽  
Theoretical Models ◽  
Analyst Forecasts ◽  
Heterogeneous Beliefs ◽  
Cross Sectional ◽  
Short Sale Constraints ◽  
Short Sale ◽  
Momentum Profits ◽  
Arbitrage Risk

AbstractRecent theoretical models derive return continuation in a setting where investors have heterogeneous beliefs or receive heterogeneous information. This paper tests the link between heterogeneity of beliefs and return continuation in the cross-section of U.S. stock returns. Heterogeneity of beliefs about a firm’s fundamentals is measured by the dispersion in analyst forecasts of earnings. The results show that momentum profits are significantly larger for portfolios characterized by higher heterogeneity of beliefs. Predictive cross-sectional regressions show that heterogeneity of beliefs has a positive effect on return continuation after controlling for a stock’s visibility, the speed of information diffusion, uncertainty about fundamentals, information precision, and volatility. The results in this paper are robust to the potential presence of short-sale constraints and are not explained by arbitrage risk.

Short Sale Constraints, Correlation and Market Efficiency

2018 ◽  
Vol 18 (2) ◽  
Author(s):  
Christos Giannikos ◽  
Eleni Gousgounis
Keyword(s):  
Market Efficiency ◽  
Heterogeneous Beliefs ◽  
Short Sales ◽  
Short Sale Constraints ◽  
Short Sale ◽  
Asset Values

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.

scholarly journals Stock Market Mispricing: Money Illusion or Resale Option?

2009 ◽  
Vol 44 (5) ◽  
pp. 1125-1147 ◽  
Author(s):  
Carl R. Chen ◽  
Peter P. Lung ◽  
F. Albert Wang
Keyword(s):  
Asset Price ◽  
Heterogeneous Beliefs ◽  
High Price ◽  
Asset Price Bubbles ◽  
Short Sale Constraints ◽  
Short Sale ◽  
Price Bubbles ◽  
Money Illusion ◽  
Stock Mispricing ◽  
The U.S

AbstractWe examine two hypotheses to explain stock mispricing: i) the money illusion hypothesis (Modigliani and Cohn (1979)) and ii) the resale option hypothesis (Scheinkman and Xiong (2003)). We find that the money illusion hypothesis may explain the level, but not the volatility, of mispricing in the U.S. market. In contrast, the stock resale option hypothesis, which stems from heterogeneous beliefs about future dividend growth rates and short-sale constraints, can explain both the level and the volatility of mispricing. The evidence suggests that while the two hypotheses complement each other in explaining the level of mispricing, the resale option hypothesis provides a more coherent explanation for asset price bubbles, in which extraordinarily high price levels are often accompanied by excessive volatility and frenzied trading.

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