Short-sale constraints, information acquisition, and asset prices

• 成果类型: Article
• 署名作者: Nezafat, Mahdi; Schroder, Mark; Wang, Qinghai
• 署名单位: Michigan State University; Michigan State University's Broad College of Business; State University System of Florida; University of Central Florida
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2017.09.007
• 发表日期: 2017
• 页码: 273-312
• 关键词: Return volatility; Short-selling bans; Information production; asset prices; rational expectations

摘要

During financial crises, financial market regulators often restrict short-selling to support prices and curb volatility. However, evidence suggests that short-selling bans during the turmoil in financial markets in 2007-2009 failed to achieve regulators' goals. We analyze a model of costly private information acquisition and asset pricing under short-sale constraints to examine a possible cause of this failure. We show that the constraints increase return volatility by adversely affecting the production of private information. When investors are highly risk averse or are holding highly correlated risky assets, the distortion in private information production arising from imposing short-sale constraints leads to undervaluation, implying that imposing short-selling bans during economic crises not only fails to curb volatility but also may fail to support prices. (C) 2017 Elsevier Inc. All rights reserved.