University of Illinois Limits to Arbitrage Netflix Share Case Study Paper

Business Finance

In class we talked about a number of different examples when security prices are not correct including parent-subsidiary pairs, companies doing name changes, also we claimed that some IPOs were structured to have artificially high prices. We also went over a number of examples when investors were making mistakes. These include: a) believing that they have information while in fact they have none (e.g.,SnapStock app from Ameritrade) ; b) misinterpreting the quality of their information; c) being confused about what security they trade (e.g., Appnet vs Appian Technology).

An example which relate the issues we discussed in class: limits to arbitrage. So, for example, you can provide another example when subsidiary was overvalued relative to the parent and an example when investors were buying company shares believing that they are in possession of information while in fact they did not have it. THESE CANNOT BE THE VERY SAME EXAMPLES DISCUSSED IN CLASS!

For each of this examples I am asking for:

1. A link or a copy of a media source or any other reference that would help me verify this example.

2. Up to 1 page summary (3 paragraphs) describing:

a) what happened (for example, subsidiary overvalued relative to a parent and point why you are make this claim)

b) why it happened (for example, a large number of investors got overexcited about prospects of the subsidiary pushing the price of sub stock too high)

c) why markets did not correct it (for example, shorting the overpriced stock was too expensive)

I already completed one example of this assignment and will send it to the tutor as a guide. The second subsidiary that I want written about is Netflix!

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