RFS Advance Access published online on March 27, 2008
Review of Financial Studies, doi:10.1093/rfs/hhn022
Trading Restrictions and Stock Prices
Baker Library, Harvard Business School
Address correspondence to Robin Greenwood, Baker Library 267, Harvard Business School, Soldiers Field, Boston, MA 02163; tel: 617-495-6979; e-mail: rgreenwood{at}hbs.edu.
JEL Classification: G12, G14
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Abstract |
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I examine a series of stock splits in Japan in which firms restrict the ability of their investors to sell their shares for a period of approximately 2 months. By removing potential sellers from the market, the restrictions have the effect of increasing the impact of trading on prices. The greater the desire of investors to trade, and the greater the restrictions, the larger the impact of the restrictions. In the data, particularly severe restrictions are associated with returns of over 30% around the ex-date, most of which are reversed when investors are allowed to sell again. Firms are more likely to issue equity or redeem convertible debt during the restricted period, suggesting strong incentives for manipulation.
I thank Malcolm Baker, Chris Malloy, Ken Froot, Hideki Hanaeda, Owen Lamont, Seki Obata, Jay Ritter, David Scharfstein, Mike Schor, Erik Stafford, Tuomo Vuolteenaho, Josh Coval, seminar participants at the University of Connecticut, the University of Massachusetts, Harvard, and the Adam Smith Asset Pricing Conference, and especially John Beshears, Joel Hasbrouck (the editor), and an anonymous referee for numerous helpful suggestions. I also thank James Zeitler for help with Datastream, Mako Egawa and Chisato Toyama for help in Japan, and Andrew Campbell, Hae Mi Choi, and Mike Schor for research assistance.