Short-Sale Constraints, Differences of Opinion, and Overvaluation

Miller (1977) hypothesizes that dispersion of investor opinion in the presence of short-sale constraints leads to stock price overvaluation. However, previous empirical tests of Miller's hypothesis examine the valuation effects of only one of these two necessary conditions. We examine the valua...

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Bibliographic Details
Published inJournal of financial and quantitative analysis Vol. 41; no. 2; pp. 455 - 487
Main Authors Boehme, Rodney D., Danielsen, Bartley R., Sorescu, Sorin M.
Format Journal Article
LanguageEnglish
Published New York, USA Cambridge University Press 01.06.2006
University of Washington School of Business Administration, University of Utah David Eccles School of Business, and New York University Leonard N. Stern School of Business
Subjects
Analytical forecasting
Fees
Financial portfolios
Financial securities
Investor behavior
Investors
Modeling
Proxy reporting
Proxy statements
Quantitative analysis
Short sales
Stock prices
Valuation
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Summary:Miller (1977) hypothesizes that dispersion of investor opinion in the presence of short-sale constraints leads to stock price overvaluation. However, previous empirical tests of Miller's hypothesis examine the valuation effects of only one of these two necessary conditions. We examine the valuation effects of the interaction between differences of opinion and shortsale constraints. We find robust evidence of significant overvaluation for stocks that are subject to both conditions simultaneously. Stocks are not systematically overvalued when either one of these two conditions is not met.
Bibliography:istex:822819FB9EBD88D961F3D08AC027B1F78466A795
PII:S0022109000002143
ark:/67375/6GQ-GV1R4CT1-D
ArticleID:00214
ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 14
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109000002143