Informed Trading with a Short-Sale Prohibition

2020 ◽  
Author(s):  
Stephen L. Lenkey
Keyword(s):  
Financial Market ◽  
Information Acquisition ◽  
Risk Sharing ◽  
Rational Expectations ◽  
Informed Trading ◽  
Short Selling ◽  
Short Sale ◽  
Market Depth ◽  
Information Sets ◽  
Empirical Implications

Using a rational expectations equilibrium framework, I evaluate the effects of a short-sale prohibition in an economy with asymmetrically informed investors who are identical except for their information sets. Relative to an economy in which short selling is permitted, the financial market is less informationally efficient under a short-sale ban even when the ban is not binding. This alters the risk-sharing environment and leads to an increase in information acquisition. Additionally, a short-sale prohibition increases market depth. Imposing a cost on short selling instead of a strict prohibition yields similar results. Novel empirical implications are identified. This paper was accepted by Karl Diether, finance.

Short Selling ADRs and Foreign Market Short-Sale Constraints

2010 ◽  
Author(s):  
Benjamin M. Blau ◽  
Richard S. Warr ◽  
Robert A. Van Ness
Keyword(s):  
Foreign Market ◽  
Short Selling ◽  
Short Sale Constraints ◽  
Short Sale

Short selling of ADRs and foreign market short-sale constraints

2012 ◽  
Vol 36 (3) ◽  
pp. 886-897 ◽  
Author(s):  
Benjamin M. Blau ◽  
Robert A. Van Ness ◽  
Richard S. Warr
Keyword(s):  
Foreign Market ◽  
Short Selling ◽  
Short Sale Constraints ◽  
Short Sale

International Real Estate Review

2001 ◽  
Vol 4 (1) ◽  
pp. 43-56
Author(s):  
Tsong-Yue Lai ◽  
◽  
Hin Man Mak ◽  
Ko Wang ◽  
◽  
...  
Keyword(s):  
Real Estate ◽  
Supply And Demand ◽  
Short Selling ◽  
Local Market ◽  
Short Sales ◽  
Rates Of Return ◽  
Short Sale ◽  
Asset Pricing Models ◽  
Short Sell ◽  
Property Markets

Asset pricing models have been used extensively in the recent real estate literature to evaluate real estate performance and estimate required rates of return of properties. In this paper, we show that the CAPM and its variants will derive a biased result when short sales are not allowed in the market. This problem is particularly serious for Asian property markets where investors are not able to short sell real estate indexes as a substitute for short selling real properties. We also demonstrate that the bias resulting from the short-sale constraint is related to the supply-and-demand conditions in the local market.

scholarly journals How to Profit From Declines of Share Prices without Shorting Them

2018 ◽  
Vol 4 (1) ◽  
pp. 10
Author(s):  
Leszek Zaremba
Keyword(s):  
Financial Market ◽  
Matrix Model ◽  
The Other ◽  
Financial Instruments ◽  
View Point ◽  
Share Prices ◽  
Short Sale ◽  
Black Scholes ◽  
Period Model

We present a 1-period model of the Polish financial market from the view point of the largest Polish company KGH, whose share prices declined from 119 PLN on June 1, 2015 to 68 PLN on December 2, 2015. Our goal is to show how KGHM might create portfolios (with practically zero cost), which would (almost) fully compensate these declines without, what is very important, short sale of KGHM’s shares. The presented methodology is equally suitable in any country for all those companies for which options on their shares are also tradable. We employ here a matrix model of a fraction of the Polish financial market and make use of the Black–Scholes formula to valuate 3 portfolios replicating 3 desired by KGHM, but not available on the market, financial instruments. To give more insight to the readers, we distinguish two cases. In one of them, volatility of KGHM’s share prices is 33%, and in the other case it equals 20%.

scholarly journals Testing of Short Sale Hypotheses on the U.S. Market in the Period from 1990 to 2015

2016 ◽  
Vol 64 (6) ◽  
pp. 2025-2038
Author(s):  
Dagmar Linnertová
Keyword(s):  
Short Selling ◽  
Panel Regression ◽  
Legal Regulations ◽  
Short Sellers ◽  
Short Sale ◽  
The U.S

The purpose of this paper is to investigate the validity of short sale hypotheses the NYSE and NASDAQ in the period 1990 – 2015. Short has been regulated in the U.S. market since the 1930s by so‑called up‑tick rules and other legal acts. The aim of this regulation was to prevent short sellers from adding to the downward momentum when the price of an asset was already experiencing sharp declines. During the 1990s, short sale regulations changed several times. In this paper, panel regression is applied to investigate short sale determinants on the NYSE and NASDAQ. Short seller motivation and the results are compared with those for particular markets and sub periods that represent different legal regulations of short selling activities in the period from 1990 to 2015.

Short-sale refinancing and earnings response coefficient: evidence from China

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tingli Liu ◽  
Ying Jiang ◽  
Lizhong Hao
Keyword(s):  
Corporate Governance ◽  
Property Rights ◽  
Emerging Market ◽  
Earnings Quality ◽  
Sample Selection ◽  
Short Selling ◽  
Content Type ◽  
Short Sale ◽  
Earnings Response ◽  
The Impact

Purpose Although short selling has been legalized in China for nearly 10 years, due to the existence of short-sale constraints, its impact on corporate governance of listed companies remains unclear. This paper aims to examine the impact of short-sale refinancing on earnings quality after the short-selling constraints have been released. The authors further explore whether this impact is subject to the nature of property rights and shareholding structures. Design/methodology/approach This study is based on a sample of A-share firms in China for the period 2014–2016. The authors use earnings response coefficients (ERC) as a proxy for earnings quality. To empirically examine this issue, a matching sample is generated by using propensity score matching method (PSM) to reduce sample selection bias. Findings This study provides evidence that deregulation of short selling has positive external effect on corporate governance. The results indicate that the potential short-selling opportunities can effectively suppress earnings manipulation and improve earnings quality. However, the impact of short selling on earnings quality varies for companies with different nature of property rights and shareholding structure. Originality/value To the best of the authors’ knowledge, this is the first study to investigate the relationship between short selling and earnings quality in the unique setting of short-sale refinancing. This study provides new evidence on the impact of short selling at the micro level and calls for further deregulation of short selling. In addition, this study contributes to existing studies on short-sale refinancing by examining an emerging market.

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