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Short-Sale Constraints, Differences of Opinion, and Overvaluation

Published online by Cambridge University Press:  06 April 2009

Rodney D. Boehme ,
Bartley R. Danielsen  and
Sorin M. Sorescu
Rodney D. Boehme
Affiliation:
[email protected], Barton School of Business, Wichita State University, Wichita, KS 67260
Bartley R. Danielsen
Affiliation:
[email protected], Kellstadt Graduate School of Business, DePaul University, Chicago, IL 60604
Sorin M. Sorescu
Affiliation:
[email protected], Mays Business School, Texas A&M University, College Station, TX 77843.
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Abstract

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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 2 , June 2006 , pp. 455 - 487
Copyright
Copyright © School of Business Administration, University of Washington 2006

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