Substitution between Short Selling and Options Trading in Predicting Aggregate Stock Returns

2019 ◽  
Author(s):  
Shiyang Huang ◽  
Tse-Chun Lin ◽  
Weinan Zheng
Keyword(s):  
Stock Returns ◽  
Short Selling ◽  
Options Trading

scholarly journals Mispricing of Book-Tax Differences and the Trading Behavior of Short Sellers and Insiders

2013 ◽  
Vol 89 (2) ◽  
pp. 511-543 ◽  
Author(s):  
Sabrina S. Chi ◽  
Morton Pincus ◽  
Siew Hong Teoh
Keyword(s):  
Stock Returns ◽  
Insider Trading ◽  
Short Selling ◽  
Data Availability ◽  
Large Set ◽  
Trading Behavior ◽  
Earnings Growth ◽  
The Public ◽  
Short Sellers ◽  
Abnormal Stock Returns

ABSTRACT We find evidence that investors misprice information contained in book-tax differences (BTDs), measured as the ratio of taxable income to book income, TI/BI. Low TI/BI predicts worse earnings growth and abnormal stock returns than high TI/BI. We find that short sellers and insiders arbitrage BTD mispricing, but the arbitrage is imperfect because of constraints on short selling and insider trading. Under SFAS No. 109 the predictability is stronger for TEMP/BI, the temporary component of TI/BI, which reflects greater managerial discretion. The results are incremental to a large set of known accruals-based anomaly predictors. We suggest that a sunshine policy of disclosing a reconciliation of book and taxable incomes can reduce mispricing of BTDs and improve capital market resource allocation. Data Availability: Data are obtained from the public sources as indicated in the text.

Short-Selling and Behavioral Bias in Korean Stock Market

2017 ◽  
Vol 25 (2) ◽  
pp. 255-278
Author(s):  
Sang Buhm Hahn
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Trading Volume ◽  
Cloud Cover ◽  
Short Selling ◽  
Weather Factors ◽  
Behavioral Bias ◽  
Short Sale ◽  
Sunshine Hours ◽  
Sale Volume

This study investigates whether or not the short-selling behavioral bias of investors exists in the Korean stock market. We analyze how the weather bias related to climate factors affects short-selling traders, commonly known as informed traders. To do this we estimated the dynamic panel model using daily data and examined the relationship between market variables such as stock returns, short sale volume, non-short sale volume, total trading volume, and weather variables consisting of cloud cover and sunshine hours. This study shows that not only returns but also short selling volumes are all affected by weather factors. In the case of stock returns, both cloud cover and sunshine hours have a statistically significant impact on returns, and its sign is estimated to be inversely proportional to both factors. That is, we find that returns decrease on cloud days, but increase on sunny days. In terms of the trading behavior of the market participants, it is interesting to note that the trading volume decreases when the weather is blunted, But did not show any statistical significances. On the other hand, both the original and the seasonally adjusted weather factors of cloud cover have a statistically significant positive effect on the short-sale volume. This means that as the weather worsens, short-selling traders submit more orders, indicating the presence of behavioral bias.

THE IMPACT OF SAVINGS WITHDRAWALS ON A BANKER’S CAPITAL HOLDINGS SUBJECT TO BASEL III ACCORD

2020 ◽  
Vol 15 (02) ◽  
pp. 2050006
Author(s):  
RYLE S. PERERA ◽  
KIMITOSHI SATO
Keyword(s):  
Stock Returns ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Short Selling ◽  
Terminal Condition ◽  
Capital Regulation ◽  
Basel Iii ◽  
Investment Strategies ◽  
The Impact ◽  
Mean Variance

In this paper, we analyze the impact of savings withdrawals on a bank’s capital holdings under Basel III capital regulation. We examine the interplay between savings withdrawals and the investment strategies of a bank, by extending the classical mean–variance paradigm to investigate the bankers optimal investment strategy. We solve this via an optimization problem under a mean–variance paradigm, subject to a quadratic optimization function which incorporates a running penalization cost alongside the terminal condition. By solving the Hamilton–Jacobi–Bellman (HJB) equation, we derive the closed-form expressions for the value function as well as the banker’s optimal investment strategies. Our study provides a novel insight into the way banks allocate their capital holdings by showing that in the presence of savings withdrawals, banks will increase their risk-free asset holdings to hedge against the forthcoming deposit withdrawals whilst facing short-selling constraints. Moreover, we show that if the savings depositors of the bank are more stock-active, an economic expansion will imply a greater reduction in bank savings. As a result, the banker will reduce his/her loan portfolio and will depend on high stock returns with short-selling constraints to conform to Basel III capital regulation.

Short selling and stock returns: Evidence from the UK

2013 ◽  
Vol 45 (2) ◽  
pp. 125-137 ◽  
Author(s):  
Azhar Mohamad ◽  
Aziz Jaafar ◽  
Lynn Hodgkinson ◽  
Jo Wells
Keyword(s):  
Stock Returns ◽  
Short Selling ◽  
The Uk

Firm opacity and informed trading around spinoffs

2018 ◽  
Vol 19 (3) ◽  
pp. 262-276 ◽  
Author(s):  
Yuan Wen
Keyword(s):  
Stock Returns ◽  
Design Methodology ◽  
Informed Trading ◽  
Options Market ◽  
Organizational Complexity ◽  
Content Type ◽  
Abnormal Stock Returns ◽  
Options Trading ◽  
The Relationship ◽  
Corporate Spinoffs

Purpose This paper aims to examine the prevalence of informed trading around corporate spinoffs and the relation between firm opacity and informed trading using option market data. Design/methodology/approach The author investigates the prevalence of informed trading by examining the relationship between abnormal stock returns associated with spinoffs and the volatility spread/volatility skewness of options prior to the spinoffs. Furthermore, the author examines how opacity and organizational complexity prior to the spinoffs affect informed trading. Findings The study shows that option volatility spread and volatility skewness for the five days prior to the spinoffs can predict the abnormal stock returns on the spinoff announcement days, suggesting that there is informed trading in the options market prior to spinoffs. The study shows that informed trading is more prevalent for firms that are more opaque prior to the spinoff. Furthermore, informed trading decreases after spinoffs. Originality/value To the best of knowledge, this is the first empirical research that examines the prevalence of informed trading around spinoffs by using options volatility spread/skewness and the relation between firm opacity and informed options trading.

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