N°17-64: Market Efficiency and Limits to Arbitrage: Evidence from the Volkswagen Short Squeeze

AuthorE. Nowak, F. Allen, M. Haas, A.Tengulov
Date5 mars 2017
CatégorieWorking Papers

On October 26, 2008, Porsche announced a largely unexpected domination plan for Volkswagen. The resulting short squeeze in Volkswagen's stock briefly made it the most valuable listed company in the world. We argue that this was a manipulation designed to save Porsche from insolvency and the German laws against this kind of abuse were not effectively enforced. Using hand-collected data we provide the first rigorous academic study of the Porsche-VW squeeze and show that it significantly impeded market efficiency. Preventing manipulation is important because without efficient securities markets, the EU's major project of the Capital Markets Union cannot be successful.

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