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On The Pricing Of Dual Class Stocks: Evidence From Berkshire Hathaway

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  • Ling T. He
  • K. Michael Casey

Abstract

This study focuses on determining whether short-term market inefficiencies exist that can be periodically exploited by investors. Berkshire Hathaway’s dual class stock with differential voting rights and one- way conversion option provides a unique opportunity to investigate this issue while controlling for other exogenous variables that could bias the findings. Given the investor attention directed toward Berkshire Hathaway, and the company’s famous CEO Warren Buffett, this company’s stock should always trade in an efficient market. The results suggest that Berkshire Hathaway class B shares tend to have significantly higher opening prices and Berkshire Hathaway class A shares tend to have higher closing prices, although both A and B shares have similar average daily returns. Price dynamics may create unique arbitrage opportunities for investors. However, the higher overnight returns for B shares may be offset by higher volatility embedded in the B shares.

Suggested Citation

  • Ling T. He & K. Michael Casey, 2011. "On The Pricing Of Dual Class Stocks: Evidence From Berkshire Hathaway," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(1), pages 103-112.
    • Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:1:p:103-112
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    References listed on IDEAS

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    More about this item

    Keywords

    Dual class stock; market efficiency; asset pricing; volatility;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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