![]() “More importantly, they need strict enforcement of securities laws. Tengulov contends that if the EU (and Germany in particular) wants to develop and maintain well-functioning capital markets, strict disclosure requirements must be put in place. The Porsche-VW paper primarily focuses on the European securities market. Both types were ruled out in the United States by the introduction of the Securities Exchange Act of 1934,” he said. “If we take a step back, we can differentiate between information-based stock manipulation and action-based stock manipulation. It’s published in the October issue of the Journal of Financial Economics. He and co-authors Franklin Allen, Marlene Haas and Eric Nowak argue this was a manipulation designed to save Porsche from insolvency, and the laws designed to prevent this kind of abuse were not effectively enforced, resulting in significantly impeded market efficiency. His paper titled “ Market Efficiency and Limits to Arbitrage: Evidence from the Volkswagen Short Squeeze” analyzes this domination plan involving the two German auto giants. “What we’re documenting is how this short squeeze event led to distortion in market quality and price discovery of the underlying stock.” “In a short squeeze situation, when the price starts increasing rapidly - which goes against short seller strategy - short sellers usually get scared, and they try to cover by buying the stock in the open market at a loss, which pushes up the price even further,” said Angel Tengulov, assistant professor of finance at the University of Kansas School of Business. This briefly made VW the most valuable listed company in the world. ![]() The biggest short squeeze in history happened in 2008 when Porsche embarked on an unexpected series of maneuvers that left it controlling a huge percentage of Volkswagen’s (VW) stock. LAWRENCE - A “short squeeze” happens in the market when investors bet against a stock that aggressively increases in price, causing these sellers to cut losses and exit their positions. KU Business Mentoring Program & KU Connect Diversity, Equity, Inclusion and BelongingĪnalytics, Information and Operations Management
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