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- Title
THE EFFICIENCY OF THE FINNISH MARKET FOR RIGHTS ISSUES: AN APPLICATION OF THE BLACK-SCHOLES MODEL.
- Authors
Berglund, Tom; Wahlroos, Bjorn
- Abstract
The article focuses on the efficiency of a minor segment of the Finnish security markets, the market for rights issues on the Helsinki stock exchange (HESE). This is the only well-developed option market in Finland. In the absence of a market for options written on currently traded securities, the rights issues market has attracted seemingly disproportionate speculator interest. The trading rules of the HESE are rather restrictive. Two institutional aspects appear especially relevant for the present study. First, transaction costs are generally fairly high, as explained in greater detail in the next section. This fact makes it necessary to introduce these cost items into any speculative strategies based on the OPM. Second, short selling is prohibited where stocks, bonds and rights are concerned. No substitute market for short contracts exists. Nevertheless, an investor can hedge a reasonable long position in any rights issue in a stock contained in the market portfolio simply by selling off his holding in the underlying stock. Thus, he adds a riskfree hedge to his market portfolio of risky securities.
- Subjects
HELSINKI (Finland); FINLAND; STOCK exchanges; FINANCIAL markets; EFFICIENT market theory; TRANSACTION costs; RIGHTS issue (Securities)
- Publication
Journal of Business Finance & Accounting, 1985, Vol 12, Issue 1, p151
- ISSN
0306-686X
- Publication type
Article
- DOI
10.1111/j.1468-5957.1985.tb00085.x