Short sale constraints and stock returns

by Charles M. Jones

Publisher: National Bureau of Economic Research in Cambridge, MA

Written in English
Published: Pages: 34 Downloads: 940
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Subjects:

  • Short selling -- United States.,
  • Stocks -- Prices -- United States.

Edition Notes

StatementCharles M. Jones, Owen A. Lamont.
SeriesNBER working paper series -- no. 8494, Working paper series (National Bureau of Economic Research) -- working paper no. 8494.
ContributionsLamont, Owen A., National Bureau of Economic Research.
The Physical Object
Pagination34, [18] p. :
Number of Pages34
ID Numbers
Open LibraryOL22428801M

Short Interest and Stock Returns Paul Asquith, Parag A. Pathak, Jay R. Ritter. NBER Working Paper No. Issued in April NBER Program(s):Corporate Finance Program, Asset Pricing Program Using a longer time period and both NYSE-Amex and Nasdaq stocks, this paper examines short interest and stock returns in more detail than any previous study and finds that many documented patterns .   A short sale is the sale of an asset or stock the seller does not own. It is generally a transaction in which an investor sells borrowed securities in anticipation of a price decline; the seller. Financial Constraints, R&D Investment, and Stock Returns finance (e.g., Berk, Green, and Naik ) usually assume, optimistically, that firms are always able to fund their projects in capital markets. In this article, I focus on the more plausible case where R&D firms face funding constraints that may restrict their ability to finance new or File Size: KB.   When short sellers are selling and a stock becomes expensive to borrow, the marginal stock buyer becomes the marginal stock lender. We show that the marginal buyer’s lending rate is vastly smaller than the average lending rate, thus dynamically restricting stock loan supply and endogenously contributing to short- sale constraints.

Further, we show that (1) when lendable supply is binding (non-binding), short-sale supply (demand) is the main predictor of future stock returns, (2) abnormal returns to the short-side of nine well-known market anomalies are attributable solely to “special” stocks, and (3) loan fees significantly reduce the profitability of the short side. positively predict stock returns. Third, retail short selling could simply reflect attention from traders whose opinions differ. Because differences in investors’ opinions and attention can combine with short sales constraints to cause overpricing (e.g., as in Miller ()), retail short. Short-sale constraints and stock returns. By Charles M. Jones and Owen A. Lamont. Abstract. Stocks can be overpriced when short-sale constraints bind. We study the costs of short-selling equities from to , using the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks Author: Charles M. Jones and Owen A. Lamont. Efficient Portfolios without Short-Sales Short Sale • Borrow asset from broker and sell now • To close short position, buy back asset and return to broker • Profit if asset price drops after short sale • If asset is sold short then 0 where = shareofwealthinasset.

During the turbulent times, short sales are often partially re-imposed although they have been fully practiced under norm circumstances. Qiu and Zhang () argues that short-sale constraints. Short‐sales practices in the Hong Kong stock market are unique in that only stocks on a list of designated securities can be sold short. By analyzing the price effects following the addition of individual stocks to the list, we find that short‐sales constraints tend to cause stock overvaluation and that the overvaluation effect is more dramatic for individual stocks for which wider Cited by:

Short sale constraints and stock returns by Charles M. Jones Download PDF EPUB FB2

The presence of short-sale constraints means that stocks can become overpriced. Consider a stock whose fundamental value is $ (i.e., $ would be the share price in a frictionless world). If it costs $1 to short the stock, then arbitrageurs cannot prevent the stock from rising to $Cited by: Stocks can be overpriced when short sale constraints bind.

We study the costs of short selling equities, -using the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting Cited by: COVID Resources.

Short sale constraints and stock returns book Reliable information about the coronavirus (COVID) is available from the World Health Organization (current situation, international travel).Numerous and frequently-updated resource results are available from this ’s WebJunction has pulled together information and resources to assist library staff as they consider how to handle coronavirus.

NBER Program(s):Asset Pricing. Stocks can be overpriced when short sale constraints bind. We study the costs of short selling equities,using the publicly observable market for borrowing stock.

Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is by: When short‐sale constraints are relaxed for pilot stocks (treatment group), both trading volume and stock price sensitivity increase prior to the analyst announcement for bad news but not for.

Stocks can be overpriced when short-sale constraints bind. We study the costs of short-selling equities from tousing the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting Cited by: CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): Stocks can be overpriced when short sale constraints bind.

We study the costs of short selling equities,using the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is high.

It seems that legal restrictions on short sales prices do not distort stock prices. Short sales constraints and the cross-section of stock returns.

The previous section discussed the performance of short-sales constrained stocks in comparison to unconstrained stocks in Author: Mostafa Saidur Rahim Khan, Hideaki Kiyoshi Kato, Marc Bremer.

By identifying stocks with particularly high short sale constraints, one identifies stocks with particularly low future returns. Consider a stock whose fundamental value is $ (that is, $ would be the share price in a frictionless world).

If it costs $1 to short the stock, then arbitrageurs cannot prevent the stock from rising to $   The maximum return of any short sale investment is %.

While this is a simple and straightforward investment principle, the Short sale constraints and stock returns book mechanics of short selling, including borrowing stock. Short sale constraints: The impact on the return distribution Article in Macroeconomics and Finance in Emerging Market Economies 5(1) March with 30 Reads How we measure 'reads'.

CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): Stocks can be overpriced when short-sale constraints bind. We study the costs of short-selling equities from tousing the publicly observable market for borrowing stock.

Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is high. disagreement or of short sale constraints, and examines only whether overpriced stocks have low future returns.

For example, Jones and Lamont (), and Chen et al. () find that stocks with more severe short sale constraints have temporarily higher prices and lower subsequent returns.

stock is subject to short-sale constraints but there is no disagreement about firm value, there are no optimists and pessimists in that market and the stock will not be overpriced. Abstract. The unique short-sales restrictions present in the Hong Kong stock market, where a list of designated securities that can be sold short is revised from time to time, provide valuable data for examining the effects of short-sales constraints on market efficiency, especially efficiency in Cited by: Abstract: We show that stock characteristics identified by D’Avolio () provide a reliable index of the mostly unobservable short sales constraints.

Specifically, we find that this index is positively related to the level of short interest and to short selling costs implied by the disparity in prices in the options and stock markets, and is negatively related to future by: Short Sale Constraints and Stock Returns Charles M.

Jones and Owen A. Lamont NBER Working Paper No. October JEL No. G14 ABSTRACT Stocks can be overpriced when short sale constraints bind. We study the costs of short selling equities,using the publicly observable market for borrowing stock. Some stocks are. Short-Sale Constraints: Good or Bad News for the Stock Market?* October S.

Ghon Rhee, Ph.D. Luke Distinguished Professor of International Finance and Banking & Executive Director of the Asia-Pacific Financial Markets Research Center University of Hawai’i Maile Way (#C) e-mail: [email protected] Size: 62KB.

Short selling constraints and stock returns volatility: empirical evidence from the German stock market Martin T. Bohl a, Gerrit Reher a, Bernd Wilfling a, a Westf alische Wilhelms-Universit at Munster, Department of Economics, Am Stadtgraben 9, Munster, Germany (Date of.

The greater the number of lagged market returns that are significant for predicting contemporaneous stock returns, the greater the delay in adjustment to new information. 6 I focus on market efficiency, as opposed to other factors, as this variable captures the tangible, end-result of short-sale constraints, the speed with which negative Cited by: Asset Prices Under Short-Sale Constraints Yang Bai, Eric C.

Chang and Jiang Wang∗ First draft: Octo This draft: Novem Abstract In this paper, we study how short-sale constraints affect asset price and market efficiency. We consider a fully rational expectations equilibrium model, in which investors trade to share risk.

CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): JEL No. G14 Stocks can be overpriced when short sale constraints bind. We study the costs of short selling equities,using the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is high.

Downloadable (with restrictions). Stocks can be overpriced when short sale constraints bind. We study the costs of short selling equities,using the publicly observable market for borrowing stock.

Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is high. We find that stocks that are expensive to short or which. Downloadable. In this paper I investigate the impact of short sale constraints on stock returns using Regulation SHO data on the NASDAQ in Extant theories suggest that removing the bid-price test rule on the NASDAQ for the so called ‘pilot stock’ would mitigate stock overvaluation.

The results in this paper, however, show that lifting the bid-price test rule on the NASDAQ goes beyond. constraints and portfolio efficiency. A question remains unanswered is how short-sale constraints/bans affect the performance of asset-pricing models in capturing the cross-section of expected assets returns.

Using unique short-selling rules from the Hong Kong stock. Overall, the results of multivariate DiD regressions in Table 3, taken together, suggest that increased short-sale due to the softening or removal of short-sale constraints triggers a decrease in stock price crash risk, which is consistent with the view that short sale facilitates bad news being incorporated into stock price in a timelier manner, thereby leading to a decrease in crash risk.

Stated another way, we Author: Xiaohu Deng, Lei Gao, Jeong-Bon Kim. CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): operator A # # preprocessing token shall not occur at the beginning or at the end of a replacement list for either form of macro definition. Commentary The # # preprocessing token is a binary operator, requiring two operands.

This operator is often called the token gluing, glue, or token pasting operator. The purpose of this study is to use the short sale ban as a laboratory to test how short sale constraints affect the cross-section of banned stocks. In particular, we seek to answer two questions.

The first question probes Miller’s () hypothesis concerning the cross-section of stock returns: Do stocks with greater dispersion of opinion. constraints, short-sale constraints will likely impact the dynamic price discovery processes on the equity and option markets.

Miller () and Damodaran and Lim () find that in the presence of short-sale constraints, traders with negative information are forced to sit out of the stock market. Short Sale Constraints and Single Stock Futures Introductions 1.

Introduction Although the notion is intuitively appealing that derivatives relax short sale constraints facing their underlying assets, there is no consensus in the literature regarding this important question. This lack of consensus is likely due to two main reasons.

In Short Supply: Short‐Sellers and Stock Returns M.D. Beneish, C.M.C. Lee, D.C. Nichols# First Draft: 17 May, This Draft: 05 October, Abstract We use detailed security lending data to examine the relation between short sale constraints and equity.Short selling is the sale of a security that is not owned by the seller or that the seller has borrowed.

Short selling is motivated by the belief that a security's price will decline, enabling it. A short sale can be regarded as the mirror image of "going long," or buying a stock. In the above example, the other side of your short sale transaction would have been taken by a buyer of.