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Author: EunJu Lee Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation consists of two essays on short sellers' trading behavior. The first essay examines if short sellers exploit temporary mispricing in the equity market. Using a mispricing indicator that measures deviations from a stock's fundamental value, we find higher levels of short selling for temporarily overvalued stocks. The result is robust to controlling for short sale constraints and illiquidity, and it is more pronounced when short sale constraints do not bind and stocks are liquid. The result also remains intact after controlling for short sellers' reaction to fundamental information. We find that short sellers contribute to market quality by correcting overpricing quickly over time, but do not destabilize the stock market. The second essay documents trading activity of short sellers through the examination of intraday patterns in short sales. We find a U-shaped intraday pattern in short sales across the trading day. This pattern is robust to controlling for short trade size, market capitalization, and institutional ownership. We also find a positive association between short selling and past returns across the trading day, and this result is more pronounced in the first and last half hours of the day. A trading strategy based on intraday short sales generates the highest returns at the open of the trading day. Overall, the results suggest that high levels of short sales at the market open are attributed to strategic trading by informed short sellers. High levels of effective spreads and volatility at the open also support our findings.
Author: EunJu Lee Publisher: ISBN: Category : Languages : en Pages :
Book Description
This dissertation consists of two essays on short sellers' trading behavior. The first essay examines if short sellers exploit temporary mispricing in the equity market. Using a mispricing indicator that measures deviations from a stock's fundamental value, we find higher levels of short selling for temporarily overvalued stocks. The result is robust to controlling for short sale constraints and illiquidity, and it is more pronounced when short sale constraints do not bind and stocks are liquid. The result also remains intact after controlling for short sellers' reaction to fundamental information. We find that short sellers contribute to market quality by correcting overpricing quickly over time, but do not destabilize the stock market. The second essay documents trading activity of short sellers through the examination of intraday patterns in short sales. We find a U-shaped intraday pattern in short sales across the trading day. This pattern is robust to controlling for short trade size, market capitalization, and institutional ownership. We also find a positive association between short selling and past returns across the trading day, and this result is more pronounced in the first and last half hours of the day. A trading strategy based on intraday short sales generates the highest returns at the open of the trading day. Overall, the results suggest that high levels of short sales at the market open are attributed to strategic trading by informed short sellers. High levels of effective spreads and volatility at the open also support our findings.
Author: Publisher: ISBN: Category : Languages : en Pages : 193
Book Description
For many years, academics generally viewed uptick rules as short sale constraints that contribute to stock overvaluation and hamper stock price efficiency. Recently adopted Regulation SHO provides us with a natural experiment to study the impact of the suspension of uptick rules on various market quality measures in a controlled environment. In the first essay, I investigate the impact of removing short sale price test rules on stock returns and find that on the NYSE, removing the tick-test rule mitigates stock overvaluation. On the NASDAQ, however, lifting the bid-test rule goes beyond correcting such overvaluation. It shows that prices of high-dispersion stocks tend to be depressed relative to prices of low-dispersion stocks. I also examine the relationship between daily short selling activities and stock returns and find that on average short sellers are more likely to be value-driven "contrarians" who short sell following high stocks returns. In the second essay, I examine the information content of short selling around the release of analyst recommendations. By looking at the magnitude and the speed of price response to analyst downgrade recommendations, I provide intra-day evidence supporting the documented assertion that suspension of the uptick rule helps improve stock price efficiency. For after-hour downgrades, pilot stocks respond quickly, with virtually all of the price response incorporated by the following open, while control stocks take an extra half hour after opening to fully reflect the new information. For downgrades that occur during normal trading hours, downgrade information is partially incorporated into pilot stock prices up to two hours before the recommendation is released, while control stocks take up to an hour and a half after the recommendation release to impound the information into stock price. Finally, short selling activities prior to the release of analyst recommendations indicate that short sellers capitalize on their private information associated with upcoming downgrades in the control sample, but such behavior seems to disappear in the pilot sample. I conjecture that, during the pilot program, short sellers were aware of the SEC's regulatory scrutiny of pilot stocks and thus avoided trading on their private information in those stocks.
Author: Amit Kumar Publisher: Columbia University Press ISBN: 0231538847 Category : Business & Economics Languages : en Pages : 263
Book Description
When an investor believes a stock is overvalued and will soon drop in price, he might decide to "short" it. First, he borrows an amount of the stock, and then sells it. He waits for the stock to tank before buying back the same amount of shares at a deflated price. After returning the shares to his lender, he pockets the difference—unless any one of several hard-to-predict variables interferes, and the stock fails to drop. Since these variables are so hard to predict, short selling is difficult for even seasoned investors. It takes great talent and experience to isolate the best short ideas for falling stocks—skills Amit Kumar developed and honed over decades of market analysis and trading. This book shares his short-selling framework, built on themes common to falling stocks and the market's endemic strengths and cycles. Featuring key case studies and exclusive interviews with successful fund managers Bill Ackman (Pershing Square Capital Management) and Mark Roberts (Off Wall Street Consulting Group), Kumar shows investors how to avoid traps and profit from well-researched short ideas. Investors may not always act on short ideas, but they can avoid losses by using Kumar's framework to identify overvalued stocks. Professionals and amateur investors alike will benefit from this fundamental research approach, which transforms short selling into a long-term strategy.
Author: Wanxi Zhao Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Using detailed daily short interest data for U.S. common stocks over the period of 2006 to 2017, my second essay examines short selling activities around earnings announcements and their impact on stocks prices. Stocks with high short interest, large changes in short interest, more covered shorts, or more new short positions prior to earnings announcements have stronger price reactions to earnings news and much weaker post-earnings-announcement drifts (PEADs). Trades by short sellers during earnings announcements are consistent with the earnings surprises as well as announcement-period returns. However, these trades do not predict post-earnings-announcement drifts. The results suggest that on average short sellers do not actively trade on earnings-related news or anomalies, but their information acquisition and trading activities help improve price discovery during earnings announcements.
Author: Chinmay Jain Publisher: ISBN: Category : Languages : en Pages :
Book Description
There are four essays in this dissertation. The first essay provides a detailed historical account of the evolution of short selling regulations and trading practices during both normal and crises periods. The second essay focuses on short selling Rule 201. We are unable to document any clear benefits of SEC Rule 201 in ensuring fair valuations and price stability, promoting higher liquidity and execution quality, or preventing a sudden flash crash or prolonged market crises. In the third essay, we examine various short selling regulatory frameworks ranging from total bans on the one extreme to unrestricted free play on the other, with partly restrictive regimes (e.g. an uptick rule or the current quote based rule) in the middle. We conclude that a rule that takes into account a stock's previous day's closing price and applies to stocks with high level of short interest is more effective than the current regulation in balancing the price efficiency benefits of short selling with its panic mongering effects. In the fourth essay, we examine after-hours short selling following quarterly earnings announcements that are released outside of the normal trading hours. We find that short sellers who trade after-hours earn a profit of 2.03% when an earnings announcement with negative surprise occurs after the close of the market. We also find that the magnitude of weighted price contribution during after-hours period increases with the increase in magnitude of after-hours short selling.
Author: Andriy Shkilko Publisher: ISBN: Category : Languages : en Pages : 282
Book Description
This dissertation consists of three essays on short selling. In the first essay, I find empirical evidence of short sellers' predatory practices. I show that traders extensively open short positions during significant intraday price drops and begin covering these positions, as the price approaches its minimum level for the day. Predatory short selling exacerbates price declines, while short covering enhances price reversals. Predators use aggressive order submission strategies and actively execute via ArcaEx to avoid abiding by the bid rule. Stocks that are most susceptible to predation have high institutional ownership, low historical returns, and high book-to-market ratios. Predatory events are fleeting, but recurring, contagious, and cannot be fully attributed to corporate or macroeconomic news releases. Predatory episodes are not good predictors of future returns. In the second essay, I investigate short selling in a marketplace with three major competitors: SuperMontage, ArcaEx, and INET. A trade-by-trade inquiry reveals that short sellers' contrarian traits are fleeting and mostly result from opportunistic executions. Short sellers are predominantly liquidity providers who constantly monitor market liquidity and time executions to most favorable conditions. On average, short sellers collect more in transaction revenues than they spend on trading costs. Stock prices increase immediately following short sales. Short sales are often routed to ArcaEx and INET, most likely because the venues do not enforce the bid test. In the third essay, I find that corporate insider purchases coincide with significant positive return reversals. Such reversals are rarely accompanied by corporate or media releases and are most likely caused by insider signaling through purchases. Insider signaling is more likely if the stock is actively shorted. I identify two types of short sellers who trade around insider purchases: (i) momentum short sellers who open new positions before insider purchase days and (ii) opportunistic short sellers who are active after such days. Additionally, I find evidence that information about purchases leaks out before insider activity is officially reported to the public.
Author: Peter Nephi Dixon Publisher: ISBN: Category : Hedging (Finance) Languages : en Pages : 127
Book Description
This dissertation examines the role of short selling and short sellers in the process by which information is gathered and incorporated into stock prices. The first essay examines how the ability to short sell impacts adverse selection in financial markets through its impact on investors' incentives to gather costly information. The second essay examines how systematic changes across the business cycle affect what types of information - macro economic or firm specific - short sellers allocate attention to during recessions and expansions.
Author: Song Wang Publisher: ISBN: Category : Languages : en Pages : 125
Book Description
My dissertation contains three essays on short-selling, margin trading, and market efficiency. The first essay uses a unique exogenous event, the introduction of short selling in the Chinese stock market, to examine the direct link between idiosyncratic risk and short selling. Based on Shleifer and Vishny (1997), I hypothesize that idiosyncratic risk deters arbitrageurs with negative information from taking short positions in overvalued stocks. Consequently, the stocks with high idiosyncratic risk are more overvalued at the onset of the introduction of short sale and perform worse in the subsequent period. The second essay examines the impact of the introduction of margin trading and short selling in the Chinese stock market on market quality. The third essay examines the relationship between short selling and SEO discount under the SEC's amendment to Rule 105. If the amendment is binding, the short-selling prior to seasoned equity offering (SEO) should correctly reflect negative information and promote price efficiency. Thus the winner's curse problem during SEO process is reduced and the value discount of a SEO should be less.
Author: EunJu Lee
Author: EunJu Lee
Author: 
Author: Amit Kumar
Author: Zhaobo Zhu
Author: Wanxi Zhao
Author: Chinmay Jain
Author: Andriy Shkilko
Author: Peter Nephi Dixon
Author: Song Wang
Author: Michael Seung Hon Lee