Essays on efficiency of capital markets

Lesnevski, Pavel

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URL:	https://madoc.bib.uni-mannheim.de/52092
URN:	urn:nbn:de:bsz:180-madoc-520925
Document Type:	Doctoral dissertation
Year of publication:	2019
Place of publication:	Mannheim
University:	Universität Mannheim
Evaluator:	Ruenzi, Stefan
Date of oral examination:	12 August 2019
Publication language:	English
Institution:	Business School > Internat. Finanzierung (Ruenzi)
Subject:	330 Economics
Keywords (English):	short selling , mispricing , sentiment , limits to arbitrage , names similarity , attention spillovers , return comovement
Abstract:	This PhD thesis comprises three research papers that contribute to the literature on market efficiency. All papers cover some aspects of the arbitrage process. The first paper, titled "A Name That Rings a Bell: Spillover Effects in Companies with Similar Names", documents irrational spillover effects in equity markets due to similarities in company names. It shows that investors' confusion of company names is a source of uninformed demand shocks that drive prices away from their fundamental levels. These price deviations are the first aspect of the arbitrage process. The second paper, titled "Do Short Sellers Exploit Stock Mispricing Smartly?", demonstrates that market participants who engage in short selling identify and exploit market anomalies and, as a result, contribute to market efficiency. Thus, this paper shows that arbitrageurs are able to identify stock misvaluations and, at least partially, push the prices back to their fundamental levels, which is the second aspect of the arbitrage process. Finally, in the third paper, titled "Surprise in Short Interest", I construct a new measure of informed short selling and find that information contained in this measure is not fully priced by market participants. The results imply that limits to arbitrage, at least partially, hinder other investors from following short-sellers' positions that are associated with abnormal returns. This type of market friction prevent prices from converging to their fair values over extended period of time. Thus, the last paper highlights market frictions as an important third aspect of the arbitrage process. I summarize all three papers in more details below.