This paper documents a strong violation of the law of one price surrounding a large-size rights issue. If prices are right, the relation between the prices of shares and rights follows the outcome of a simple calculation. In the case of Royal Imtech N.V. prices deviated sharply from the theoretical prediction. Throughout the term of the rights, investors were buying shares at prices that were up to nine times what they should have been given the price of the rights. The most likely explanation for the sizeable and persistent mispricing is the limited availability of shares for short selling.
News | June 22, 2018
An article in The Wall Street Journal refers to paper by TI fellows
The article ‘The Stock-Market Price Can Be Wrong. Very Wrong. Researchers have caught investors in the act of wildly–and unnecessarily–overpaying for a stock’ in The Wall Street Journal by Jason Zweig refers to paper ‘Can the Market Divide and Multiply? A Case of 807 Percent Mispricing in Absence of Arbitrage Risk by fellows Martijn van den Assem (VU Amsterdam), Dennie van Dolder (VU Amsterdam), Remco Zwinkels (VU Amsterdam), and co-author Marc Schauten. The article appeared in WSJ online edition on June 15, 2018. The paper is available on SSRN.
Abstract