2021
DOI: 10.1287/mnsc.2019.3467
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Short-Sales Constraints and the Diversification Puzzle

Abstract: Disagreement about stock valuation, combined with short-sales constraints, can increase asset prices. We build a model showing that, so long as investor beliefs are not perfectly correlated, investors disagree less about the value of a conglomerate than about each of its individual divisions. This generates a conglomerate discount with disagreement and short-sales constraints being complementary in explaining its cross-sectional variation. We test these predictions empirically and find substantial support: con… Show more

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Cited by 9 publications
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