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Microcap & Penny Stocks : Tech Squared (TSQD)- Internet Commerce
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To: M. Frank Greiffenstein who wrote (2095)8/12/1998 1:12:00 PM
From: Sigmund  Read Replies (1) of 2752
 
<<<< The absence of shorting ability is not necessary to meet the conditions for arbitrage. Shorting only makes the arbitrage volatile. <<<<

No Doc, you are totally incorrect on this.

If the spread between TSQD and DRIV were too low, i.e. if TSQD was overpriced, people could buy DRIV to reinstitue the correct spread but DRIV is the larger element (market cap) and will trade more in its own right. People who owned TSQD could and would sell it, but arbitragers would not be able to participate (shorting TSQD) unless they were MM's or others able to short (Canadians perhaps?). This makes the market less able to adapt which increases volatility rather than reduces it.
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