scholarly journals Bundlers' dilemmas in financial markets with sampling investors

2020 ◽  
Vol 15 (2) ◽  
pp. 545-582
Author(s):  
Milo Bianchi ◽  
Philippe Jehiel
Keyword(s):  
Financial Markets ◽  
Short Selling ◽  
Market Clearing ◽  
Limited Sampling ◽  
Welfare Losses ◽  
Heterogeneous Quality ◽  
Short Sell

We study banks' incentive to pool assets of heterogeneous quality when investors evaluate pools by extrapolating from limited sampling. Pooling assets of heterogeneous quality induces dispersion in investors' valuations without affecting their average. Prices are determined by market clearing assuming that investors can neither borrow nor short‐sell. A monopolistic bank has the incentive to create heterogeneous bundles only when investors have enough money. When the number of banks is sufficiently large, oligopolistic banks choose extremely heterogeneous bundles, even when investors have little money and even if this turns out to be collectively detrimental to the banks. If, in addition, banks can originate low quality assets, even at a cost, this collective inefficiency is exacerbated and pure welfare losses arise. Robustness to the presence of rational investors and to the possibility of short‐selling is discussed.

Short‐sell moratorium effects on regional bank performance

2013 ◽  
Vol 5 (2) ◽  
pp. 92-110
Author(s):  
Michael Devaney ◽  
William L. Weber
Keyword(s):  
Trading Volume ◽  
Short Selling ◽  
Bank Risk ◽  
Too Big To Fail ◽  
Content Type ◽  
Naked Short Selling ◽  
Regional Bank ◽  
Capm Model ◽  
Short Sell ◽  
Regional Banks

PurposeThe purpose of this paper is to investigate the effects of the 2008 SEC short‐sell moratorium on regional bank risk and return. The paper also examines the decline in “failures to deliver” securities in the wake of SEC short‐sell moratorium.Design/methodology/approachIn total, six regional bank portfolios are derived and the beta coefficients from a CAPM model are estimated using the integrated generalized autoregressive conditional heteroskedasticity (IGARCH) method accounting for the short‐sell moratorium. Data on 110 regional banks in six US regions from January 2002 to December 30, 2011 are used to estimate the model.FindingsThe ban on naked short selling and the SEC short‐sell moratorium significantly increased individual bank risk for a majority of banks in six geographic regions, but also increased return in three of three regions. There was also reduced naked short selling as failures to deliver securities declined sharply after the September 2008 moratorium took effect.Originality/valueRegional banks have generally not achieved the size needed to be deemed “too big to fail” by policy‐makers. Thus, policy changes such as the SEC short‐sell moratorium might be expected to have larger effects on regional banks than on larger banks, which might be shielded from the policy change by having achieved “too big to fail” status. The authors' results are consistent with research that has shown that short‐sell restrictions increase risk by reducing liquidity and trading volume.

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.

Does a unique “T+1 trading rule” in China incur return difference between daytime and overnight periods?

2018 ◽  
Vol 8 (1) ◽  
pp. 2-20 ◽  
Author(s):  
Xundi Diao ◽  
Hongyang Qiu ◽  
Bin Tong
Keyword(s):  
Financial Markets ◽  
Short Selling ◽  
Trading Rule ◽  
Content Type ◽  
Index Futures ◽  
Linear Regression Technique ◽  
The Difference ◽  
Nonparametric Techniques ◽  
Return Difference ◽  
Practical Implications

Purpose The purpose of this paper is to examine the difference between the daytime (open-to-close) and overnight (close-to-open) returns of CSI 300 index and its derivative futures. Design/methodology/approach The paper explores the difference between the daytime and overnight time returns by using nonparametric techniques. Moreover, investigation on some factors such as short selling, trading rules, risks are made to seek the sources of the day and night effects based on a large number of empirical analysis. In the end, further analyses on daytime and overnight returns are given by the use of high-frequency data and linear regression technique. Findings The authors show that the daytime returns of CSI 300 index are no less than its overnight returns, while the daytime returns of CSI 300 index futures are no more than its overnight returns, even after removing the heteroscedasticity of the researched time series. Specifically, the PM returns (13:05 to close) play a quite important role in the intra-day time. The findings also suggest that the unique “T+1 trading rule” in China may be a reason that incurs the lower opening price in the morning and the higher closing price in the afternoon, resulting in the statistically significant differences between the daytime and overnight returns. Practical implications The findings are of great importance for investors to decide when to buy and sell stock and futures portfolios in Chinese financial markets. Originality/value This study empirically analyzes why there the higher daytime returns and the lower overnight returns exist in the Chinese stock markets from different aspects and contributes the existing literature on day and night effects because of periodic market closures.

Principles for modelling financial markets

1996 ◽  
Vol 33 (03) ◽  
pp. 601-613 ◽  
Author(s):  
Eckhard Platen ◽  
Rolando Rebolledo
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Real World ◽  
Market Model ◽  
Rate Of Return ◽  
Probability Measures ◽  
Market Clearing ◽  
The Difference ◽  
Risk Free Rate ◽  
Free Rate

The paper introduces an approach focused towards the modelling of dynamics of financial markets. It is based on the three principles of market clearing, exclusion of instantaneous arbitrage and minimization of increase of arbitrage information. The last principle is equivalent to the minimization of the difference between the risk neutral and the real world probability measures. The application of these principles allows us to identify various market parameters, e.g. the risk-free rate of return. The approach is demonstrated on a simple financial market model, for which the dynamics of a virtual risk-free rate of return can be explicitly computed.

Banning Cassandra from the Market? An Empirical Analysis of Short-Selling Bans during the Covid-19 Crisis

2020 ◽  
Vol 17 (3-4) ◽  
pp. 386-418 ◽  
Author(s):  
Gianfranco Siciliano ◽  
Marco Ventoruzzo
Keyword(s):  
Financial Markets ◽  
Information Asymmetry ◽  
Stock Markets ◽  
Abnormal Returns ◽  
Equity Market ◽  
Short Selling ◽  
Market Quality ◽  
Policy Goals ◽  
The World ◽  
European Stock Markets

During the recent COVID-19 pandemic crisis, stock markets around the world have witnessed an abrupt decline in security prices and an unprecedented increase in security volatility. In response to a week of financial turmoil on the main European stock markets, some market regulators in Europe, including France, Austria, Italy, Spain, Greece, and Belgium, passed temporary short-selling bans in an attempt to stop downward speculative pressures on the equity market and stabilize and maintain investors’ confidence. This paper examines the effects of these short-selling bans on market quality during the recent pandemic caused by the spread of COVID-19. Our results suggest that during the crisis, banned stocks had higher information asymmetry, lower liquidity, and lower abnormal returns compared with non-banned stocks. These findings confirm prior theoretical arguments and empirical evidence in other settings that short-selling bans are not effective in stabilizing financial markets during periods of heightened uncertainty. In contrast, they appear to undermine the policy goals market regulators intended to promote.

SHORT-SELLING IN PREDICTION MARKETS

2012 ◽  
Vol 5 (2) ◽  
pp. 14-31 ◽  
Author(s):  
Florian Teschner ◽  
Maximilian Coblenz ◽  
Christof Weinhardt
Keyword(s):  
Forecast Accuracy ◽  
Short Selling ◽  
Prediction Markets ◽  
Market Uncertainty ◽  
Negative Effects ◽  
Ongoing Debate ◽  
Study Approach ◽  
Economic Information ◽  
Historical Accuracy ◽  
Short Sell

Macroeconomic forecasts are used extensively in industry and government even though the historical accuracy and reliability is questionable. We design a market for economic derivatives that aggregates macro-economic information. The market generated forecasts compare well to the Bloomberg- survey forecasts, the industry standard.It is an ongoing debate in finance whether short selling has positive or negative effects on market efficiency. We discuss how short selling can be implemented in such markets. Using an event-study approach we find that introducing short selling further improves forecast accuracy. By allowing traders to short sell, mispricing is reduced and hence market forecasts are closer to actual macro economic outcome. Furthermore, we find short selling lowers quoted spreads, a measure for market uncertainty.

How does short selling affect liquidity in financial markets?

2018 ◽  
Vol 25 ◽  
pp. 244-250 ◽  
Author(s):  
Benjamin M. Blau ◽  
Ryan J. Whitby
Keyword(s):  
Financial Markets ◽  
Short Selling

scholarly journals Impact Of Short Selling In Financial Markets

2017 ◽  
Vol 11 (3) ◽  
pp. 2447-2481 ◽  
Author(s):  
Neha Sharma
Keyword(s):  
Literature Review ◽  
Financial Markets ◽  
Market Efficiency ◽  
Stock Price ◽  
Short Selling ◽  
Oil Price ◽  
Anglo Saxon ◽  
Crude Oil Price ◽  
Price Variation ◽  
Key Characteristics

With the financial crisis gripping the stock market worldwide in the last few months of 2008, there have been widespread criticisms on the process of short selling. The opponents have questioned the existence of short selling and argued about the foul play of the short selling. Following such widespread campaigning, in order to boost the investors confidence short selling was either or restricted in most of the Western markets and in the Anglo-Saxon countries. Nevertheless, the financial experts and economists were divided in the opinion of anning short selling. Many argued that such ban will affect the market efficiency and disturb the market from operating freely and fairly. Hence the current research is about the impacts or the effects the ban on short selling have on the financial markets, especially the capital markets. This study focuses on finding such effects in a neutralised approach and free from bias to any side. The research is compiled in such a way that, the literature review was conducted with an aim of uncovering the loop holes and functioning of short selling experts. Accordingly, the findings of the literature review are in the form of a list of key characteristics short selling possess which increases the efficiency of the system. These key characteristics are evaluated based on the stock price variations in the LSE. The conclusions are drawn based on the findings on the literature review and the analysis done on the stock price movements, crude oil price variation and a survey on the perception of short selling. Based on the findings, a set of  commendations are made which will help in the further understanding of the short selling.

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