After a subsidiary company spins off from its parent and becomes public, what happens when the subsidiary distributes its shares to the parent firm's shareholders at some later time?
What I'm reading seems to suggest that the price of the subsidiary's stock will converge to that of its parent, but I'm not sure why. Can someone elaborate on this?
For context, I'm reading a paper on limitations of arbitrage that studies events where the market value of a parent company is worth more than that of its subsidiary.