header bg

Question:

Under which of the following conditions are market values of securities most likely to be persistently greater than their intrinsic values?

A Short selling is restricted.
Explaination

Restrictions on short sales remove some of the selling pressure on overvalued securities that would otherwise drive their market values down toward their intrinsic values in an efficient market. Market inefficiency caused by high transactions costs or restriction on arbitrage trading may allow market values that are different from intrinsic values to persist both for overvalued and undervalued securities.