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| Author: | Lamont, O. A. Thaler, R. H. |
| Title: | Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs |
| Journal: | Journal of Political Economy
2003 : APR, VOL. 111:2, p. 227-268 |
| Index terms: | FINANCIAL MARKETS ASSET VALUATION PRICING TECHNOLOGY ASSESSMENT |
| Language: | eng |
| Abstract: | Recent equity carve-outs in U.S. technology stocks appear to violate a basic premise of financial theory: identical assets have identical prices. In our 1998-2000 sample, holders of a share of company A are expected to receive x shares of company B, but the price of A is less than x times the price of B. A prominent example involves 3Com and Palm. Arbitrage does not eliminate this blatant mispricing due to short-sale constraints, so that  is overpriced but expensive or impossible to sell short. Evidence from options prices shows that shorting costs are extremely high, eliminating exploitable arbitrage opportunities |
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