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• W3122478697 abstract "This paper examines, in a Canadian context, the effect of short sales regulation on the risk-return relationship. Drawing from Jarrow's work (1980), we derive an equilibrium risk-return relationship that accounts for both heterogeneous expectations and short sales regulation. We conclude that the required rate of return on risky assets in a world where short sales are forbidden is equal to the required rate which would prevail in a world free of short sales restrictions, minus an opportunity cost induced by short sales regulation. We show that, theoretically, this opportunity cost is positively related to the dispersion of agents' beliefs and negatively related to the security's liquidity level. We test the model over the sixty-month period from January 1985 through December 1989 and use 13079 observations (220 companies on average). We pool all the observations into a time series cross-sectional model and use Litzenberger and Ramaswamy's methodology (1979) to address three econometric problems: heteroscedasticity, cross-correlation of disturbance terms and beta measurement errors. The results permit us to establish that a negative linear relationship links expected risky asset returns and the divergence of agents' beliefs. This negative relationship is consistent with the presence of opportunity costs resulting from short sales regulation when return beliefs are heterogeneous. We find that the negative relationship between security returns and dispersion of beliefs is essentially confined to illiquid securities, that is, those monitored by a small number of analysts. Finally, these results are not modified when tested on two sub-periods nor when we introduce two control variables (size, as measured by the number of analysts monitoring the stock, and January effect). L'etude traite de l'effet de la reglementation des ventes a decouvert sur la relation rendement-risque, au Canada. ¸ partir du cadre developpe par Jarrow (1980), nous developpons une expression de la relation rendement-risque lorsque les anticipations des agents sont heterogenes et les ventes a decouvert sont restreintes. Il apparait alors que les restrictions sur les ventes a decouvert induisent un cout d'opportunite qui reduit le taux de rendement anticipe. Ce cout d'opportunite devrait etre une fonction positive de la dispersion des anticipations et une fonction negative du niveau de liquidite du titre. Ces hypotheses sont verifiees a l'aide de donnees mensuelles, qui couvrent la periode de0101 1985 a1101 1989. La methodologie de Litzenberger et Ramaswamy (1979), est utilisee afin de resoudre les divers problemes econometriques. Les resultats montrent une relation lineaire negative entre le rendement des titres et le niveau d'heterogeneite des anticipations, mesure par la dispersion des previsions des analystes financiers. Cette relation est surtout observable pour les titres les moins liquides, qui sont ici les moins suivis par les analystes financiers. Ces resultats valent pour chaque sous periode et resistent a l'introduction de variables de controle." @default.
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• W3122478697 date "1995-05-01" @default.
• W3122478697 modified "2023-10-18" @default.
• W3122478697 title "Heterogeneous Expectations, Short Sales Regulation and the Risk Return Relationship" @default.
• W3122478697 hasPublicationYear "1995" @default.
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