On October 26, 2008, Porsche announced a largely unexpected takeover plan for Volkswagen (VW). The resulting short squeeze in VW’s stock briefly made it the most valuable listed company in the world. In our paper, forthcoming in the Journal of Financial Economics, we argue that this was a manipulation designed to save Porsche from insolvency and the German laws against this kind of abuse were not effectively enforced. Using hand-collected data, our paper provides the first rigorous study of the Porsche-VW squeeze and shows that it significantly impeded market efficiency. Preventing this kind of manipulation in the European Union is important because without efficient securities markets, the EU’s major project of the Capital Markets Union cannot be successful.

At the height of the financial crisis on Monday, October 27, 2008, VW’s stock price rose dramatically and surged past EUR 1,005 per share on Tuesday, October 28, 2008, from a close the previous Friday of EUR 211 per share. This briefly made VW the most valuable listed company globally in terms of market capitalization. Our paper explores the degree to which this price increase was the result of an unexpected press release that Porsche Automobil Holding SE (Porsche SE or Porsche) made on Sunday, October 26, 2008. On the evening of this Sunday, Porsche announced a domination plan for VW. The rise in VW’s stock price caused a short squeeze and turned out to be very advantageous to Porsche. Using hand-collected data and information from court proceedings in Germany, the paper estimates that the rise in VW’s stock price resulted in a profit of at least EUR 6 billion and allowed Porsche to avoid bankruptcy.

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