Abstract
This paper presents an empirical evidence on the pricing of rights issues traded on the Stock Exchange of Singapore (SES). It is demonstrated that rights prices typically trade below the short arbitrage boundary for a subscription warrant. Given the presence of SES short selling restrictions, which prevent the execution of short arbitrage trades, the size of the price deviations below the arbitrage boundary is attributed to the trading profits of SES market makers. Evidence is also provided indicating that the expected economic dilution associated with the rights issue is only partially reflected in ex rights stock prices.
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