Abstract
This 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 positive earnings stock in a difficult-to-short industry experiences larger and more persistent underpricing after earnings announcement than those in an easy-to-short industry; and that the observed larger underpricing in a difficult-to-short industry is associated with the short-sale constraint, not with their illiquidity or information inefficiency. Moreover, this inverse relation between the positive PEAD and its industry’s short-ability is stronger during the inactive equity linked warrant (ELW) trade period, thereby suggesting that short-selling alleviates the mispricing by facilitating arbitrage activities (not by the other channels); and ELW actually play roles as an alternative of short trade.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
