Short sale constrained stocks are overpriced on average. I show that firms exploit mispricing by selling shares when their stock is short sale constrained and repurchasing shares when their stock is easily shorted. Stocks underperform following seasoned equity offerings (SEOs) if and only if the stock is difficult to short. This suggests that some SEOs are motivated by mispricing, whereas others are not. Short selling costs make it difficult for investors to profit from the poor performance following SEOs. Short selling and SEOs are alternative ways to supply shares to investors, and firms become the low-cost share provider when short selling is costly.

Markets should be inefficient enough to allow returns to security analysis to adequately compensate the marginal analyst for his efforts. Cross-sectional differences in the costs of analysis therefore imply cross-sectional differences in market efficiency and in before-cost returns to smart investors. Small growth stocks are difficult to analyze and costly to trade. I find that the abnormal returns of mutual fund investments in small growth stocks from 1980 to 2006 averaged 0.76% per month. Large value stocks are easier to analyze and cheaper to trade. Mutual funds earned average monthly abnormal returns of only 0.05% in large value stocks during the same period.

I examine how transparency and interdealer trading affects prices investors pay in municipal bond offerings. Real-time trade reporting for municipal bonds started January 31, 2005. The dispersion of purchase prices fell sharply at that time. There was little impact on average markups for most trades, but they increased for purchases of more than $100,000. Bonds often pass through a series of dealers before being placed with a buy-and-hold investor. As the interdealer trades progress, trade sizes decline and trade prices rise. Markups on investor purchases increase with the amount of interdealer trading before the trade.

Units are bundles of common stock and warrants. By selling initial public offerings (IPOs) of units, firms precommit to sell more stock in the future at the warrant's exercise price. Sequential offerings of this type reduce the agency costs of giving management a potential free cash flow at the IPO. Consistent with this theory, firms that choose unit IPOs are smaller, have less income and assets in relation to their IPO proceeds, and are less likely to survive than firms that issue shares.

Stoll and Whaley (1983) suggest large transaction costs may be responsible for the large risk-adjusted returns earned by small firm stocks. This study, using data from the AMEX as well as the NYSE, shows that investors can earn risk-adjusted excess returns after transaction costs by holding small firms for relatively short holding periods. Other literature that provides evidence that is inconsistent with the transaction costs hypothesis is cited.

Journal Article Regulatory and Legal Pressures and the Costs of Nasdaq Trading Get access Paul Schultz Paul Schultz University of Notre Dame Address correspondence to Paul Schultz, College of Business Administration, University of Notre Dame, Notre Dame, IN 46556, or e-mail: [email protected]. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 13, Issue 4, October 2000, Pages 917–957, https://doi.org/10.1093/rfs/13.4.917 Published: 15 June 2015

We document by several methods that trading in Nasdaq stocks is localized, but find little evidence that cloudy weather in the city in which a company is based affects its returns. The first evidence of localized trading is that the time zone of a company's headquarters affects intraday trading patterns in its stock. Second, firms in blizzard-struck cities see a dramatic trading volume drop compared to firms in other cities. Third, the Yom Kippur holiday dampens trading volume in companies located in cities with high Jewish populations. Despite the strong evidence of localized trading, cloudy conditions near the firm's headquarters do not provide profitable trading opportunities.