Essays On Short Selling Regulations
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Essays On Short Selling Regulations
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Author : Chinmay Jain
language : en
Publisher:
Release Date : 2012
Essays On Short Selling Regulations written by Chinmay Jain and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
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.
Two Essays On Short Selling And Uptick Rules
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Author :
language : en
Publisher:
Release Date : 2008
Two Essays On Short Selling And Uptick Rules written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
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.
Three Essays On Naked Short Selling And Fails To Deliver
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Author : John W. Welborn
language : en
Publisher:
Release Date : 2013
Three Essays On Naked Short Selling And Fails To Deliver written by John W. Welborn and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Breach of contract categories.
This dissertation consists of four chapters that investigate the causes and consequences of fails-to-deliver (FTDs) in U.S. stock markets. In Chapter 1, I present a brief history of U.S. trade settlement institutions. In Chapter 2, I analyze the effects of eliminating a market making exception to timely close-out requirements on FTDs and stock borrow rates. In Chapter 3, I show that amendments to SEC short sale rules reduced common stock FTDs but did not prevent large and persistent FTD positions in exchange-traded funds (ETFs). Further, positive changes to ETF FTDs Granger-cause higher market index volatility. In Chapter 4, I find that high FTD stocks experience abnormal negative returns, and thus high FTDs indicate a nonbinding short sale constraint. In Chapter 2, I investigate the consequences of eliminating the Options Market Maker Exception to SEC Regulation SHO (the "Exception"). Until 2008, options market makers that engaged in bona fide market making were exempt from locate and certain close-out requirements for short sales. The Exception applied only to short sales that qualified as bona fide hedges of options positions that were established before a stock went on the Regulation SHO Threshold List. I test the hypothesis that eliminating the Exception reduced the incentive to naked short sell stocks through the options market. I compare data from the second and fourth quarters of 2008. Consistent with my predictions, I find that eliminating the Exception led to fewer FTDs and higher stock borrow rates for optionable stocks as compared to non-optionable stocks. Further, removing the Exception reduced optionable stock FTDs when the price of borrowing stock was high. Finally, options market trading volume declined after the Exception was eliminated. In Chapter 3, I investigate the determinants of ETF FTDs. ETF trading volumes have increased over the last decade, and so have unsettled ETF trades at the clearing corporation. ETF FTDs are large and persistent despite SEC rules that require timely close-out. I document positive relationships between ETF FTDs and short sale volume, stock borrow costs, put option open interest, and quarterly index options expiration ("triple witching") dates. These findings are consistent with the hypothesis that market makers fail to deliver to avoid borrowing costs associated with short sales. I also document a positive relationship between short sale demand and changes to ETF shares outstanding. I then find that positive changes in aggregate ETF FTDs Granger-cause higher market index volatility. This is because market makers are required to buy or borrow stock to close-out ETF FTD positions by trade date plus six days ("T+6"). In Chapter 4, I analyze the relationship between high FTDs and stock returns. The academic short sale literature views FTDs as evidence of binding stock lending constraints, and stocks with FTDs may be overpriced because short interest is below equilibrium levels. Conversely, high short interest stocks with nonbinding short sale constraints experience abnormal negative returns. This is because informed short sellers are willing to pay extra to short. I find that high FTD stocks from the Russell 3000 Index experienced abnormal negative returns from 2004 through 2008. I obtain this result in both an event study and a portfolio returns analysis using Fama-French factors. Thus, high FTDs are evidence of a nonbinding short sale constraint that does not restrict informed short selling because high FTD stocks, similar to high short interest stocks, experience abnormal negative returns. While this research does not determine whether FTDs depress stock prices, it demonstrates that high FTD stocks are not overpriced. Additional support for this finding comes from the fact that short interest and FTDs are highly correlated.
Three Essays In Finance
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Author : Xiaohu Deng
language : en
Publisher:
Release Date : 2017
Three Essays In Finance written by Xiaohu Deng and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
This dissertation presents three papers that examine the real effects of market frictions such as short selling constraints, and also informed trading in put option and short selling markets. Specifically, first two essays examine the positive externalities of short selling, and paper 3 examines the informational patterns of short selling and put option trading and interactions between both trading activities. Essay 1 studies the real effects of short selling constraints on stock prices, and corporate investment. To do so, I exploit world-wide regulatory interventions to permit short selling. I find that reducing short selling constraints causes stock prices and crash risk to drop, and price efficiency to improve. Corporate investment also drops and is accompanied by a drop in debt and equity issues. Investment becomes more responsive to growth opportunities. My results suggest that short selling constraints can alleviate distortions in stock prices and corporate investment. My results are consistent with the notion that stakeholders infer information from stock prices and adjust investment accordingly. Essay 2 examines whether short selling reduces politically motivated bad news hoarding. I examine the stock price behavior of Chinese public firms around two highly visible political events - meetings of the National Congress of the Chinese Communist Party and Two Sessions (The National People’s Congress Conference and The Chinese People’s Political Consultative Conference) from 2002-2014, and find that political bad news hoarding has been reduced after short selling becomes available. I establish causality by relying on a difference-in-differences approach based on a controlled experiment of short selling regulation changes in China. I also find this reduction in bad news hoarding to be more pronounced in firms with stronger politicalconnection (higher state ownership and larger size) and higher accounting opacity, which further confirms our finding. This study sheds new light on the real effects of short sellers on political impact on capital market. Essay 3 identifies the informational patterns of short sales and option trades. Using VAR and calculating Impulse Response Functions, I find that short selling in general contains more information than put option trading, and put option trading has limited substitution effect.
Essays On Short Selling And Margin Trading In China
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Author : Saqib Sharif
language : en
Publisher:
Release Date : 2013
Essays On Short Selling And Margin Trading In China written by Saqib Sharif and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Margins (Security trading) categories.
Short Selling Activity In The Stock Market
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Author : United States. Congress. House. Committee on Government Operations. Commerce, Consumer, and Monetary Affairs Subcommittee
language : en
Publisher:
Release Date : 1991
Short Selling Activity In The Stock Market written by United States. Congress. House. Committee on Government Operations. Commerce, Consumer, and Monetary Affairs Subcommittee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1991 with Consumer protection categories.
Three Essays On Regulation Of Firms And Investment Funds
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Author : Sheran Deng
language : en
Publisher:
Release Date : 2021
Three Essays On Regulation Of Firms And Investment Funds written by Sheran Deng and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Corporate governance categories.
ESSAY 1: Using a Department of Justice policy change intended to increase individual responsibility of managers for corporate offenses (e.g., pollution) as a natural experiment, I find that firms with a high ex-ante probability of regulatory violations ("exposed firms") reduce investment, sales, and employment. Such reductions in reduce shareholder value. Exposed firms suffer an abnormal return of -1% around the event date on average. The negative value effects are concentrated in exposed firms with low agency costs. Exposed firms have lower cash salaries for managers after the policy intervention. Various tests support the causal effect of the policy intervention on firm behavior. These findings suggest that most regulatory offenses do not represent an agency cost on shareholders when fines are paid by shareholders. Instead, fines on shareholders allow a manager to pursue potentially harmful projects whose value to shareholders outweighs fines borne by them. ESSAY2: We present a model on regulating externalities of a firm run by a manager and owned by shareholders. In equilibrium, optimal regulation in the presence of an agency conflict can take two forms. In one regulatory strategy, a fine is imposed on the manager, and no firing takes place. Alternatively, a fine is imposed on the firm (i.e., shareholders), and the fine is lower if the manager is fired. As the agency conflict becomes more severe fining the manager becomes more attractive. Finally, we find that regulation costs are lower when the manager and shareholders are separate entities. ESSAY3: This paper studies the impact of disclosure on short selling. Using a confidential dataset on shorts on stocks traded in the Dutch stock market including both short positions large enough to trigger public disclosure and positions not large enough, we find that the quality of shorts increases discontinuously at the reporting threshold. we find strong evidence that short sellers increase security selection intensity when their short positions approach the reporting threshold. We rule out several alternative explanations These results suggest that transparency disincentivizes shorting on noisy information.
The Art Of Short Selling
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Author : Kathryn F. Staley
language : en
Publisher: John Wiley & Sons
Release Date : 1996-12-23
The Art Of Short Selling written by Kathryn F. Staley and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996-12-23 with Business & Economics categories.
A one-of-a-kind book that shows you how to cash in on the latestinvesting trend--short selling "The Art of Short Selling is the best description of this difficulttechnique."--John Train, Train, Thomas, Smith Investment Counsel,and author of The New Money Masters "Kathryn Staley has done a masterful job explaining the highlyspecialized art of short selling. Her approach to telling the truestories of famous investment 'scams' will keep the readerspellbound, while teaching the investor many cruciallessons."--David W. Tice, Portfolio Manager, Prudent BearFund "Selling short is still a misunderstood discipline, but even themost raging bull needs to know this valuable technique to masterthe ever-changing markets."--Jim Rogers, author, InvestmentBiker On the investment playing field, there is perhaps no game moreexciting than short selling. With the right moves, it can yieldhigh returns; one misstep, however, can have disastrousconsequences. Despite the risk, a growing number of players areanteing up, sparked in part by success stories such as that ofGeorge Soros and the billions he netted by short selling theBritish pound. In The Art of Short Selling, Kathryn Staley, anexpert in the field, examines the essentials of this importantinvestment vehicle, providing a comprehensive game plan with whichyou can effectively play--and win--the short selling game. Whether used as a means of hedging bets, decreasing the volatilityof total returns, or improving returns, short selling must behandled with care--and with the right know-how. As Staley pointsout, "Short selling is not for the faint of heart. If a stock movesagainst the position holder, the effect on a portfolio and networth can be devastating. Investors need to understand the impacton their accounts as well as the consequences of getting bought inbefore they indulge in short selling." The Art of Short Sellingguides you--clearly and concisely--through the ins and outs of thishigh-risk, high-stakes game. The first--and most important--move in selling short is to identifyflaws in a business before its share prices drop. To help youtackle this key step, Staley shows you how to evaluate companyfinancial statements and balance sheets, make sense of returnratios, detect inconsistencies in inventory, and analyze thestatement of cash flows. Through real-world examples thatillustrate the shorting of bubble, high multiple growth, and themestocks, you'll proceed step by step through the complete processand learn to carry out all the essentials for a successful shortsell, including quantifying the risk factor and orchestratingcorrect timing, as well as implementing advanced valuationtechniques to execute the sell/buy. Packed with landmark, cutting-edge examples, up-to-the-minuteguidelines, and pertinent regulations, The Art of Short Selling isa timely and comprehensive reference that arms you with thenecessary tools to make a prepared and confident entrance onto theshort selling playing field.
Three Essays On Financial Markets
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Author : Cagdas Tahaoglu
language : en
Publisher:
Release Date : 2021
Three Essays On Financial Markets written by Cagdas Tahaoglu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with categories.
This dissertation consists of three essays that address recent topics in financial markets that concern for scholars, policymakers, and investors. The first essay examines the benefits of international diversification for US investors, while accounting for market development, corporate governance, market cap effects, and structural change across countries over period August 1996 -July 2013. Improved risk adjusted returns are obtained from a diversified portfolio consisting of a mix of developed and emerging countries. Additionally, we find that diversification benefits are not significant for most of the small-cap foreign assets when an investor already holds position in corresponding countries large-cap assets. Diversification benefits based on the governance effectiveness of a country's companies are not ubiquitous. We find that economically significant improvements in risk-return performance can be attained by adding large caps of developed countries with high and low overall Governance Metrics International (GMI) ratings and large and small caps of emerging countries with low overall GMI ratings to the investment universe containing the assets of common law developed countries. However, diversification benefits are economically significant only for large and small caps of low GMI emerging countries when short selling is not allowed. The second essay looks at the market impact of recent regulatory changes in Canada that provide for trading halts on individual stocks that experience large upside or downside movements. The focus is on all stocks traded on the Toronto Stock Exchange since the inception of the single stock circuit breaker rule (SSCB) in February 2012, to replace the short-sale uptick rule. The results support pricing efficiency: material information that caused the circuit breaker is incorporated in stock prices on the day of the halt (neither overreaction nor underreaction), with no decline in market liquidity. Using trade-by-trade data constructed on 5-minute trading intervals, we refine the daily results, and show that shocks in realized volatility are focused in the ten-minute trading interval surrounding the halts. While circuit breakers provide a limited "safety net" for investors when their stocks are subject to severe volatility, they do not provide for a quick turnaround for stocks experiencing severe price decline events. The last essay re-examines the historical vs implied volatility spread anomaly, reported by Goyal and Saretto (2009) using a second-order stochastic dominance (SSD) criterion. The approach incorporates transaction frictions, and is robust to model specification problems, return distributions, as well as preferences. It is found that option trading frictions such as cash collateral requirements and option trading costs significantly reduce but do not eliminate returns to a long-short straddle trading strategy pre-2006 period. However, the anomaly disappears after 2006, consistent with market efficiency. The SSD test results confirm the findings.
Handbook Of Short Selling
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Author :
language : en
Publisher: Academic Press
Release Date : 2018-10-30
Handbook Of Short Selling written by and has been published by Academic Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-10-30 with Business & Economics categories.
This comprehensive examination of short selling, which is a bet on stocks declining in value, explores the ways that this strategy drives financial markets. Its focus on short selling by region, its consideration of the history and regulations of short selling, and its mixture of industry and academic perspectives clarify the uses of short selling and dispel notions of its destructive implications. With contributions from around the world, this volume sheds new light on the ways short selling uncovers market forces and can yield profitable trades.