Which of the following is least likely to be a reason pricing inefficiencies exist on the short-side? A) There are more potential buyers than sellers of stock. B) The securities exchanges in the developed world prohibit short sales. C) Management has options in firm’s stock.
McLeod81 i went for C as well…see the explanation below: Your answer: C was incorrect. The correct answer was B) The securities exchanges in the developed world prohibit short sales. Although there may be limitations on short sales, they are not prohibited by securities exchanges. There are more potential buyers than sellers of stock so analysts are reluctant to lose these potential customers with a sell recommendation. Also management may hold their firm’s stock and options and put pressure on analysts to not issue sell recommendations.
I’ve come across that question on Q-bank before but I still disagree with the answer… So I guess that means that short-selling has NOT been prohibited in any developed markets?? Ok.