Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs

Lamont, Owen A.; Thaler, Richard H.

doi:10.3386/w8302

Cited by 259 publications

(354 citation statements)

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“…A possible explanation here is that this is due to "bad" managers tracking the trades of their better-informed peers during market rallies in order to avoid making poor investments -and the concomitant personalized stigma conferred by underperforming during up markets. What is more, given the evidence (Grinblatt and Keloharju, 2001;Lamont and Thaler, 2003) suggesting that bullish markets tend to attract more noise investors, it is possible that the institutional herding documented here during up markets is the result of a concerted effort on behalf of fund managers to exploit noise traders during periods of optimistic sentiment.…”

Section: Results -Discussionmentioning

confidence: 99%

Do fund managers herd in frontier markets — and why?

Economou

Gavriilidis

Kallinterakis

et al. 2015

International Review of Financial Analysis

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Frontier markets constitute a category of markets for which very little is known regarding the behaviour of their institutional investors. This study attempts to shed light on this issue by investigating whether fund managers herd in frontier markets and whether their herding is intentional or not using data on quarterly portfolio holdings of funds from two such markets (Bulgaria and Montenegro). Results show that fund managers herd significantly in both markets; controlling for the interaction of their herding with different market states, we find that herding is stronger for both markets during periods of positive market performance and high volume, while in the case of Montenegro it also appears significant during periods of low volatility. Our findings are consistent with fund managers herding intentionally, in anticipation of informational and/or professional payoffs. We also find that Bulgarian (Montenegrin) fund managers herd significantly after (before) the outbreak of the 2008 global financial crisis and we attribute this to a volume-effect, since Montenegro (Bulgaria) saw the heaviest trading activity before (after) the crisis' outbreak.

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Section: Results -Discussionmentioning

confidence: 99%

Do fund managers herd in frontier markets — and why?

Economou

Gavriilidis

Kallinterakis

et al. 2015

International Review of Financial Analysis

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“…There were higher shorting interest for Internet stocks, higher borrowing costs for shorting Internet stocks, and greater violation of put call parity for Internet stocks in the options market (e.g., Ofek and Richardson (2003)). This figure is taken from Figure 5 of Lamont and Thaler (2003).…”

Section: The Internet Bubblementioning

confidence: 99%

“…According to Lamont and Thaler (2003), the short interest eventually went up from less than 20% of the floating shares in March 2000 to 150% in July 2000, which implied that the same share might have been shorted multiple times. During this process, the so-called stub value of 3Com (i.e., the market valuation of 3Com minus its holding of Palm shares) gradually turned from negative $23 billion to positive.…”

Section: The Internet Bubblementioning

confidence: 99%

“…During this process, the so-called stub value of 3Com (i.e., the market valuation of 3Com minus its holding of Palm shares) gradually turned from negative $23 billion to positive. See Figure 2 (taken from Lamont and Thaler (2003)) for the plots of 3Com's stub value and Palm's short interest during this period. Lamont and Thaler also documented five other similar carveout cases in which the parent companies carried negative stub values and shorting the subsidiary firms was difficult.…”

Section: The Internet Bubblementioning

confidence: 99%

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Bubbles, Crises, and Heterogeneous Beliefs

Xiong

2013

Handbook on Systemic Risk

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This paper reviews the quickly growing literature that builds on heterogeneous beliefs, a widely observed attribute of individuals, to explain bubbles, crises, and endogenous risk in financial markets.Wei Xiong Princeton University Department of Economics Bendheim Center for Finance Princeton, NJ 08450 and NBER wxiong@princeton.edu 1The history of financial markets has been dotted with episodes of bubbles, during which market values of assets vastly exceeded reasonable assessments of their fundamental value. Asset price bubbles can lead to severe economic consequences ranging from wasteful over-investment and frenzied trading during booms to devastating financial crises and depressed real economies during busts. Economists have emphasized many aspects of bubbles and crises. Minsky (1974) advocated the view that excessive expansion of bank credit due to optimism can fuel a speculative euphoria and slowly lead the economy to a crisis. Kindleberger (1978) stressed that irrationally optimistic expectations frequently emerge among investors in the late stages of major economic booms and lead firm managers to over-invest, over-promise, and over-leverage, which sow the seeds for an eventual collapse after they fail to deliver on their promises.Shiller (2000) highlighted a host of psychological biases people use in forming a feedback mechanism, through which initial price increases caused by certain initial precipitating factors such as new technology innovations feed back into even higher asset prices through increased investor confidence and expectations. Allen and Gale (2007) focused on agency problems of professional managers who actively seek unwarranted risk, which leads to bubbles and crises.This chapter reviews a quickly growing body of work that was started by Harrison and Kreps (1978) that studies bubbles and crises based on heterogeneous beliefs, a widely observed attribute of individuals.In a market in which agents disagree about an asset's fundamental and short sales are constrained, an asset owner is willing to pay a price higher than his own expectation of the asset's fundamental because he expects to resell the asset to a future optimist at an even higher price. Such speculative behavior leads to a bubble component in asset prices. This approach does not require a substantial amount of aggregate belief distortions to generate a significant price bubble. Instead, the bubble component builds on the fluctuations of investors' heterogeneous beliefs. Even when investors' aggregate beliefs are unbiased, intensive fluctuations of their heterogeneous beliefs can lead to a significant price bubble through frenzied trading (e.g., Scheinkman and Xiong (2003)). This approach is flexible enough to incorporate several important aspects of bubbles and crises, such as over-investment (e.g., Bolton, ) and crashes (e.g., Abreu and Brunnermeier (2003) and Hong and Stein (2003)). Heterogeneous beliefs can also lead to credit cycles (e.g., Geanakoplos (2010)). The speculation induced by heterogeneous beliefs also lea...

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“…Academic research investigating the existence of bubbles in stock markets is quite extensive (e.g., Campbell andShiller, 1987, 1988;Diba and Grossman, 1988;Froot and Obstfeld, 1991;Craine, 1993;Timmermann, 1995;Crowder and Wohar, 1998;Lamont, 1998;Thaler, 1999;Shiller, 2000b;Cooper et al, 2001;Ritter and Welch, 2002;Ofek and Richardson, 2002;Lamont and Thaler, 2003;Brunnermeier and Nagel, 2004;Sollis, 2006;Hong and Stein , 2007;Stiglitz, 2009;Gutierrez, 2011;and Griffin et al, 2011;Philips, Shi and Yu, 2012, among others) 3 .…”

Section: Introductionmentioning

confidence: 99%