It's SHO Time! Short‐Sale Price Tests and Market Quality

Diether, Karl B.; Lee, Kuan‐Hui; Werner, Ingrid M.

doi:10.1111/j.1540-6261.2008.01428.x

Cited by 356 publications

(166 citation statements)

References 31 publications

(53 reference statements)

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152

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“…Contrasting examples are the relaxation by the Securities and Exchange Commission of the uptick rule restricting short sales (Diether, Lee, and Werner 2009a;Jakab 2008) and recent efforts to constrain short selling described in note 1. Greater ease of short selling may potentially help protect investors from the hazards of trading overpriced stocks.…”

Section: Discussionmentioning

confidence: 99%

Short Arbitrage, Return Asymmetry, and the Accrual Anomaly

Hirshleifer¹,

Teoh²,

2011

Rev. Financ. Stud.

247

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We find a positive association between short selling and accruals during 1988-2009, and that asymmetry between the up-and downsides of the accrual anomaly is stronger when constraints on short arbitrage are more severe (low availability of loanable shares as proxied by institutional holdings). Short arbitrage occurs primarily among firms in the top accrual decile. Asymmetry is present only on NASDAQ. Thus, there is short arbitrage of the accrual anomaly, but short-sale constraints limit its effectiveness. (JEL G14, G11) Recently, market upheavals have renewed the perennial debate between those who view short selling as causing downward price distortion, and those who argue that short selling helps correct overpricing. 1 Short interest, the amount of short selling in a stock, provides a revealing window into the determinants of arbitrage activity and the extent to which arbitrage succeeds in eliminating mispricing. We test here whether short arbitrageurs respond to firm overvaluation, and whether they succeed in correcting it, by measuring the effect on short selling of a proxy for market misvaluation and accruals, and by testing whether constraints on short arbitrage affect the degree to which mispricing

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Section: Discussionmentioning

confidence: 99%

Short Arbitrage, Return Asymmetry, and the Accrual Anomaly

Hirshleifer¹,

Teoh²,

2011

Rev. Financ. Stud.

247

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“…The relaxation by the Security and Exchange Commission of the "uptick rule" restricting short sales is a possible example Werner 2009b, andJakab 2008). Such improvements may potentially help protect investors from the hazards of trading overpriced stocks.…”

Section: Resultsmentioning

confidence: 99%

Short Arbitrage, Return Asymmetry and the Accrual Anomaly

Hirshleifer

Teoh

2010

SSRN Journal

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“…Diether et al (2009b) examined how the SHO regulation affects the market quality. Boulton andBraga-Alves (2009), andBoehmer et al (2008) examined the impact of the short-ban during 2008 global financial crisis and found that the ban on short-selling worsens the market's liquidity and price discovery.…”

Section: The Literature Reviewmentioning

confidence: 99%

Can Short-Selling Alleviate the Underpricing?

Wang¹,

Lee²

2017

Glob Bus Financ Rev

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A B S T R A C TThis paper investigates whether short-selling facilitates arbitrage activity and mitigates the positive post-earnings announcement drift (PEAD), the well-known underpricing anomaly. Using the quarterly earnings announcement of the Korean Stock Exchange KOSPI200 composite stocks, we find that the positive earnings stock in a difficult-to-short industry experiences the larger and more persistent underpricing after earnings announcement than those in an easy-to-short industry; and that the severe underpricing in a difficult-to-short industry is associated with the short-sale constraint, not with their illiquidity or information inefficiency. We also find that the inverse relationship between the positive PEAD and its industry's short-ability is stronger during the inactive ELW trade period, weaker during the active ELW trade period. Our findings suggest that short-selling help not only the overpriced stocks but also the underpriced stocks revert back to its fundamental value by facilitating arbitrage activities.

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It's SHO Time! Short‐Sale Price Tests and Market Quality

Cited by 356 publications

References 31 publications

Short Arbitrage, Return Asymmetry, and the Accrual Anomaly

Short Arbitrage, Return Asymmetry, and the Accrual Anomaly

Short Arbitrage, Return Asymmetry and the Accrual Anomaly

Can Short-Selling Alleviate the Underpricing?

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