Short-Sale Constraints, Information Acquisition, and Asset Prices

Nezafat, Pedram; Schröder, Mark; Wang, Qinghai

doi:10.2139/ssrn.2257093

Cited by 7 publications

(2 citation statements)

References 16 publications

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“…At the empirical level we can argue that our model given by Relation (14) supports the evidence in Kang and Stulz (1997), and Dahlquist and Robertsson (2001) and more recently Nezafat et al (2015) and Dumas et al (2017) where the home bias equity is explained by asymmetric information and market restriction. Table 1 Simulation of the expected rate of return for different levels of information and short sale costs The empirical test provided by Kang and Stulz (1997) shows that the investor portfolio is biased against small firm and that the investors overinvesting in large firms in Japan due to the availability of information about these large firms.…”

Section: Simulation Resultssupporting

confidence: 75%

International capital asset pricing model: the case of asymmetric information and short-sale

Bellalah

Dammak

2019

Ann Oper Res

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We develop an international capital asset pricing model in the presence of shadow costs of incomplete information and short sales. Our model shows the direct effect of exchange rate risk, information costs and short sales costs on asset prices. At equilibrium, this model gives an explicit expression of two systematic risk premium. The first one is linked to the exchange rate. The second one is related to international market risk. Our model explains in part the well-known home bias equity by market segmentation. This model, which is proposed for the first time in the literature, can be seen as an international version of Wu et al. (Rev Quant Finance Account 7:119-136, 1996) and Merton (J Finance 42:483-511, 1987) models of capital market equilibrium in international markets. Our analysis shows that the dispersion in beliefs increases the market inefficiency, and that short sale constraints can reduce the cost of ignorance and the magnitude of the home bias equity. Our model provides an operational approach in asset pricing to take account of previous important costs.

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Section: Simulation Resultssupporting

confidence: 75%

International capital asset pricing model: the case of asymmetric information and short-sale

Bellalah

Dammak

2019

Ann Oper Res

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show abstract

“…Thus, the impact of Lendable is not restricted to the equity market. A few recent studies suggest that the amount of lendable shares could be a binding short sale constraint (Beneish, Lee, and Nichols, 2013), which may give (footnote continued) rise to the important externality of discouraging information acquisition (Nezafat and Wang, 2014). 3 The first variable follows the literature (e.g., Scott and Xu, 2004;Jenter, 2005), while we construct the second variable as the maximum selling span in a given month to capture our unique prediction regarding the speed of trading.…”

mentioning

confidence: 99%