Short sales and put options: Where is the bad news first traded?

Hao, Xiaoting; Lee, Eun‐Ju; Piqueira, Natalia Scotto

doi:10.1016/j.finmar.2012.09.005

Cited by 16 publications

(4 citation statements)

References 22 publications

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“…In a similar vein, Hao et al (2013) found that put options became more informative before the release of negative information even when short sales were allowed, suggesting that the options market attracted more informed trading. However, Battalio and Schultz (2011) and Grundy et al (2012) discovered that trading volume in the options market did not increase when short sales were banned during the 2008 financial crisis period, indicating that options availability could not serve as a viable alternative to short sales.…”

Section: Short-sale Constraints and Availability Of Option Tradingmentioning

confidence: 83%

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Short-sale constraints and stock returns: a systematic review

Khan

2024

JCMS

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PurposeThis study delves into the nuanced implications of short-sale constraints on stock prices within the context of stock market efficiency. While existing research has explored this relationship, inconsistencies persist in their findings. The purpose of this study is to conduct a comprehensive review of literature to elucidate the reasons behind these disparities.Design/methodology/approachA systematic review of existing theoretical and empirical studies was conducted following the PRISMA method. The analysis centered on discerning the factors contributing to the divergence in projected stock prices due to these constraints. Key areas explored included assumptions related to expectations homogeneity, revisions, information uncertainty, trading motivations and fluctuations in supply and demand of risky assets.FindingsThe review uncovered multifaceted reasons for the disparities in findings regarding the influence of short-sale constraints on stock prices. Variations in assumptions related to market expectations, coupled with fluctuations in perceived information uncertainty and trading motivations, were identified as pivotal factors contributing to differing projections. Empirical evidence disparities stemmed from the use of proxies for short-sale constraints, varied sample periods, market structure nuances, regulatory changes and the presence of option trading.Originality/valueThis study emphasizes the significance of not oversimplifying the impact of short-sale constraints on stock prices. It highlights the need to understand these effects within the broader context of market structure and methodological considerations. By delineating the intricate interplay of factors affecting stock prices under short-sale constraints, this review provides a nuanced perspective, contributing to a more comprehensive understanding in the field.

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Section: Short-sale Constraints and Availability Of Option Tradingmentioning

confidence: 83%

“…In a similar vein, Hao et al. (2013) found that put options became more informative before the release of negative information even when short sales were allowed, suggesting that the options market attracted more informed trading.…”

Section: Review Of Empirical Studies Providing Evidence On the Influe...mentioning

confidence: 83%

Short-sale constraints and stock returns: a systematic review

Khan

2024

JCMS

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“…We then compare the number of nonzero returns for 14 Put option markets existed in three of these five countries at the time of the short-selling regulation change: Hong Kong, Norway, and Sweden. Though put option markets contribute to the negative information content of stock prices, there is evidence that short selling contributes more (see, e.g., Hao, Lee, and Piqueira (2013), Deng, Gao, and Kemme (2018)). Thus, we do not expect put option markets to crowd out the short-selling effects we investigate in this article.…”

Section: Data and Samplementioning

confidence: 99%

Short-Sale Constraints and Corporate Investment

Deng¹,

Gupta²,

Lipson

et al. 2022

J. Financ. Quant. Anal.

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In a sample of non-U.S. regulatory regime shifts, we find that expanded short selling is associated with stock price declines, reductions in capital expenditure, and lower asset growth. In a reversal of results found for U.S. stocks in a study of Regulation SHO by Grullon, Michenaud, and Weston (2015), our results are stronger for large firms than for small firms. We also show that this investment effect is stronger for firms that previously relied on outside financing. Our results suggest that short-sale policies affect corporate investment and that this effect is not driven by capital constraints.

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“…Kacperczyk and Pagnotta (2019) argue that the options volume includes more private information than equity volume does. Other articles also support the view that options trading conveys stock price information (DeTemple and Jorion, 1990; Figlewski and Webb, 1993; Kumar et al ., 1998; Chan et al ., 2002; Cao et al ., 2005; Battalio and Schultz, 2006; Roll et al ., 2009; Cao and Wei, 2010; Hao et al ., 2013; Hu, 2014).…”

Section: Introductionmentioning

confidence: 99%

Whose option ratios contain information about future stock prices?

Koo,

Kim

2024

JDQS

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Using the next-day and next-week returns of stocks in the Korean market, we examine the association of option volume ratios – i.e. the option-to-stock (O/S) ratio, which is the total volume of put options and call options scaled by total underlying equity volume, and the put-call (P/C) ratio, which is the put volume scaled by total put and call volume – with future returns. We find that O/S ratios are positively related to future returns, but P/C ratios have no significant association with returns. We calculate individual, institutional, and foreign investors’ option ratios to determine which ratios are significantly related to future returns and find that, for all investors, higher O/S ratios predict higher future returns. The predictability of P/C depends on the investors: institutional and individual investors’ P/C ratios are not related to returns, but foreign P/C predicts negative next-day returns. For net-buying O/S ratios, institutional net-buying put-to-stock ratios consistently predict negative future returns. Institutions’ buying and selling put ratios also predict returns. In short, institutional put-to-share ratios predict future returns when we use various option ratios, but individual option ratios do not.

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Short sales and put options: Where is the bad news first traded?

Cited by 16 publications

References 22 publications

Short-sale constraints and stock returns: a systematic review

Short-sale constraints and stock returns: a systematic review

Short-Sale Constraints and Corporate Investment

Whose option ratios contain information about future stock prices?

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