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PurposeThe purpose of this paper is to investigate the extent to which introduction of ETFs reduces short‐sale constraints in their constituent stocks.Design/methodology/approachFirst, the introduction of ETFs increases short interest for stocks that they hold. Second, the increase in short interest is highest for the stocks that were most short‐sale constrained. Third, subsequent additions of a stock to an ETF will have a lesser impact on short interest than the first time additions. Finally, using matched control sample and regression analysis approaches, the authors make sure that their results are robust to determinants of short‐selling activity which extant research has found to be relevant.FindingsWhen a stock is included in an ETF for the first time, the paper finds that the average monthly short‐selling activity of the stock in the six months following ETF‐inclusion is, on average, 33 percent higher than that in six months prior to the inclusion. This effect is the strongest for stocks that are most short‐sale constrained. The analysis of subsequent additions of stocks to ETFs reveals that the effect of increased short‐selling activity is significantly attenuated when compared to the first‐time additions. All of the findings are robust to the matched sample comparisons and multiple regression analysis that account for determinants of short‐selling activity.Originality/valueThis paper shows that: the introduction of ETFs helps relax short‐sale constraints in the market; that the extent to which a stock's outstanding shares are held by one or more ETFs serves as a proxy for the degree to which stocks are short‐sale constrained; and implies that the introduction of ETFs makes the prices of the funds' underlying securities more efficient.

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Purpose À The purpose of this paper is to review an explanation for the causes of the stock market crash in 1987, update the empirical support for that argument, and compare to recent market developments. Design/methodology/approach À While the market crash on October 19, 1987 was the largest one-day S&P 500 drop in percentage terms in history (20.47 percent) there was also a large market drop (10.12 percent) in the three trading days before the 1987 crash. Previous research has shown show that the three-day decline was the largest in more than 40 years, large enough that the drop was news itself (the October 16, 1987 drop immediately before the crash was also an extremely large oneday decline). The theoretical model of Jacklin et al. show how a surprise significant drop in the market could have provided information to the market that could directly lead to an immediate crash. Findings À The paper follows the stock market for 20 years after 1987, and finds the magnitude of the market decline immediately preceding October 19, 1987 was still a significant outlier À only one three-day period in the 20 years after 1987 had as large a market decline. The paper documents the large market movements and volatility in the period beginning in fall 2008 and suggests that this ''crash'' is different than what occurred in 1987.Research limitations/implications À This paper's main limitations lie in the implications drawn about the causes of the 2008 crash. Practical implications À This paper provides evidence on the causes of the 1987 crash and implications for the 2008 decline. The 1987 crash was due in part to characteristics news but also to the market and trading strategy, the 2008 ''crash'' is more likely a response to fundamental economic news. Originality/value À This paper uses empirical evidence since 1987 to look back on the causes of the 1987 crash. Keywords Stock markets, Stock prices, Take-overs, Regulation, Financial modelling, United States of America Paper type Research paper The cover story from the Newsweek (1987) issue that was released the weekend directly before the October 19, 1987 crash was titled ''Is the party over?'' The second paragraph of the article starts, ''The cascading Dow and record trading volume marked a major shift in psychology and sent a powerful shiver across the country'' (Dentzer, et al., 1987).