Short Selling Research Articles

Margin trading and value relevance of earnings: Evidence from China

Information asymmetry and accounting information effectiveness are important issues in the capital market. Based on a sample of China's A-share listed companies from 2007 to 2021, this paper studies the impact of China's margin trading and short-selling policy on the value relevance of earnings and the unerlying mechanisms. We find that, compared with companies that are not included in margin trading and short selling lists, the earnings value relevance of listed companies increases significantly after allowing for short selling. In addition, margin trading and short selling improve the value relevance of earnings more significantly for firms with higher agency costs and firms with lower information transparency.

Short Selling and Bank Deposit Flows

Short Selling and Bank Deposit Flows

Reputation and Recency: How Do Aggressive Short Sellers Assess Esg-Related Information?

Reputation and Recency: How Do Aggressive Short Sellers Assess Esg-Related Information?

The Dual Role of Short Sellers in the Lifecycle of Securities Litigation

The Dual Role of Short Sellers in the Lifecycle of Securities Litigation

Does short seller informativeness extend to trading halts?

Does short seller informativeness extend to trading halts?

Market Impacts of the 2020 Short Selling Bans

Market Impacts of the 2020 Short Selling Bans

An Analysis of Short Selling Restrictions in Factor Model Based Portfolio Immunization

An Analysis of Short Selling Restrictions in Factor Model Based Portfolio Immunization

Early evidence of short selling effects on dividends payout in Egypt: Does earnings quality make a difference?

Early evidence of short selling effects on dividends payout in Egypt: Does earnings quality make a difference?

Does Short Selling Disclosure Decrease the Liquidity of Individual Stocks?

Does Short Selling Disclosure Decrease the Liquidity of Individual Stocks?

공매도 및 주식대차거래와 관련한 소득 과세

[Purpose]In this study, we examined the issues surrounding income taxation in relation to short selling and the stock lending transactions associated with it. Additionally, we proposed essential supplementary institutional measures. [Methodology]To achieve this, we scrutinized relevant precedents and interpretations in Korea, and consulted discussions and legislation in the United States and Japan. [Findings]The topics addressed in this study, along with the proposed measures for income taxation purposes, can be summarized in the following two points. [Implications]Firstly, during stock lending transactions, a formal transfer of ownership occurs. A question arises as to whether capital gains should be taxed following such a formal transfer of ownership. While administrative interpretation asserts no taxation, judicial precedent stipulates that transfer tax is imposed upon the transfer of legal ownership. In cases of qualified loan transactions where economic risks and rewards are not transferred, it is economically prudent not to tax capital gains, even if formal ownership is transferred. A similar issue existed in the United States and was resolved through legislation. Secondly, there is the matter of taxing investors on gains and losses from short selling. Under Korea’s income tax law, which adopts an enumerative method, gains and losses from short selling are not subject to taxation. Moreover, it is not included in the financial investment income tax, scheduled for implementation from 2025 following a postponement. Legislative supplementation is necessary, and given that short selling differs from spot investment in stocks and shares similar characteristics with stock derivatives, it seems fitting to categorize it under the basic deduction group of 2.5 million won. In short selling, when borrowed stocks are returned and the short selling is concluded according to the open transaction doctrine, gains and losses are confirmed, and the time for taxation arrives.

Collusion Indicators in the GameStop Short Squeeze


 
 
 A new theory and model of the stock market that incorporates decision noise in the spirit of behavioral economics, collaboration in the spirit of experimental economics, and financial data and features in the spirit of econophysics is used to support a theory from 2005 that stock-market collusion should lower the level of stock-market decision noise - i.e., a quantitative way of seeing how traders influence each other in a stock market. This idea is used to find two rare indicators of the GameStop short squeeze – one of which occurred six days before the rapid price increase, which could have potentially reduced the over $19 billion in losses of short sellers by a significant amount. The relationship predicted by the model between temperature and aggregate volume has been validated by data from the GameStop short squeeze.
 
 

The Impact of Short Selling on the Quality of Accounting Information Disclosure of Listed Companies

As the capital market develops and matures, the requirements for the quality of accounting information of listed companies gradually increase. Under these circumstances, it is essential to verify whether implementing this system can improve the quality of accounting information and realize the effective allocation of resources. In order to empirically test the governance effect of short selling on the accounting information disclosure of listed companies, this paper uses the data of A-share listed companies from 2009 to 2011, uses the differential and probit model, and finds that short selling has no significant impact on the quality of information disclosure. China officially implemented the short-selling system on March 31, 2010. During the early stages of implementation, the trading volume of short-selling was small, and the scale of short-selling of listed companies was also small. Therefore, short-selling transactions in a short period of time will not significantly affect the quality of accounting information disclosure.

Short Squeezes

We investigate the prevalence and persistence of short squeezes and the corresponding economic consequences on the stocks being squeezed. Using daily short sale data, we provide evidence that a short squeeze on average subsides within seven trading days and can be driven by both the capital constraint of the short sellers and the short sale constraint of the underlying stocks. The risk of being squeezed is higher during major macroeconomic events. Further analyses reveal that squeezed stocks experience an increase in the demand for and the cost of borrowing the shares and in trading volume, idiosyncratic volatility, and abnormal returns.

On Frontier Portfolio in Shanghai Stock Exchange Based on Mean Variance Model

In security markets, how to achieve optimal allocation of asset has become the focus of investors. The mean-variance model is a method to achieve revenue maximization and risk minimization on investing stock portfolio. This paper will research on investment problem in Shanghai Stock Exchange. It involves research result about mean variance model since 1952. To take the experiment, 10 stocks are chosen from Shanghai Stock Exchange. Organizing rates of return for 360 days and using the average daily rate of return as the expected rate of return. Applying mean variance model, selecting data, the curve of frontier portfolio is obtained by experiment. Based on the result, the investment advice is given. It shows that higher expected rate of return accompanies by higher risk. To achieve higher returns, investor could analyse the variation of each asset along with the rise of the expected rate of change. When negative weight appears, there exists short selling. If short selling is not allowed, investor could shrink the interval of the expected rate of return.

Research on the Investment Portfolio Optimization Based on Efficient Frontier Model: A Portfolio of AMD, NVIDIA, TXN, LRCX, AVGO, QCOM, INTC and MRVL

Optimal investment portfolio is beneficial for investors to make decisions and construct investment strategy. This paper uses effective frontier methods to build an investment portfolio. This study selects 8 different companies from the USA, which are AMD, MRVL, LRCX, QCOM, INTC, AVGO, and TXN, and collects the data to optimize investment portfolio. The study finds that the optimal portfolio point is (0.1407, 0.0506), the risk is 0.1407, and the return is 0.0506. In this case, for AMD, MRVL, NVIDA, LRCX, INTC, QCOM, AVGO, and TXN, the weights for each company are 0.0502, -0.3867, 0.5289, 0.4367, -0.9987, -0.2805, 1, and 0.6501, respectively. The study allows for short selling and buy mechanisms, since a negative number is actually equivalent to a short sale. As a result, the study has an optimal portfolio that enables investors to make optimal investment decisions for the company the study choose. Through this research, it can help people to increase their life quality, because investment can help with more finance in the daily life, which can let people consume a better goods.

The Effect of Short-Sale Restrictions on Corporate Managers

This paper studies the effect of short selling on corporate managers from 2002 through 2010. We examine how the exemption of short-sale uptick tests due to the Regulation SHO pilot program affects managers’ decisions to abandon value-reducing acquisition attempts. We find that when deciding whether to abandon value-reducing acquisition attempts during the program, managers of pilot firms, whose stocks are less subject to short-selling impediments, are more sensitive to stock price changes than managers of nonpilot firms. We find no difference in managers’ sensitivity prior to nor post SHO. These results indicate that, despite their dislike of short sellers, managers believe that the level of informativeness from capital markets is superior when short sellers are less impeded.

Distributed mean reversion online portfolio strategy with stock network

Online portfolio selection is a practical problem in financial engineering and quantitative trading. Many empirical studies show that stock performance in the market is likely to follow mean reversion, and strategies based on mean reversion show better return performance than the market average. However, the existing mean reversion strategies are not universal and short selling is not allowed, which is unsuitable for real-time investment. In this paper, we propose a distributed mean reversion online portfolio strategy through a stock correlation sub-network to solve these problems. Theoretical analysis shows that our strategy is universal and the convergence rate is calculated. The empirical results show that our strategy is better than the existing universal strategies in terms of return performance, nor is it sensitive to transaction cost.

Thoughts on Hindenburgs Report on Adani Share Price

In this paper, we investigate the impacts of Hindenburgs accusation report on the share prices of seven Adani Group subsidiaries. Using linear regression and Cumulative Abnormal Returns (CAR) analysis, show the effect of the information within the event period. Additionally, the study explores the correlations between the seven companies' stock returns and Sharpe Ratios. We observed an instantly negative effect and further speculated why the recovery varies. We have also developed a more detailed understanding of short selling and put forward suggestions currently beneficial to investors.

Short selling and trade credit: New evidence

This study investigates the effect of short sales on firms' use of trade credit. Using a sample of 3262 Chinese listed firms from 2007 to 2019, the analysis results show that both the deregulation and the magnitude of short sales negatively affect trade credit. The transmission mechanism indicates that firms' access to formal financing decreases after short sales deregulation, which mitigates firms’ ability to redistribute formal financing through trade credit. Moreover, the results suggest that shortable firms tend to adopt a moderate trade credit policy and adjust their trade credit to the target level at a lower rate than non-shortable firms. This study reveals the features of the short sales–trade credit relationship in an emerging market.

Behavioral biases in short selling—An experimental study

AbstractShort selling is a common practice in financial markets. Although there is extensive research concerning short selling and short sellers, in the behavioral and experimental economics literature, there are only a few studies that examine it. This paper investigates the pricing of two forms of short selling both theoretically and experimentally—selling a lottery short and paying to close the short position. The theoretical framework presents and analyzes the two positions and the influence of the anchoring and uncertainty effects on the pricing. To test the theoretical framework, we asked participants in an experiment about the price they were willing to accept for the obligation to pay the lottery's outcome and the price they were willing to pay to close the obligation to pay the lottery's outcome they held. Moreover, we used a simple lottery with different framings, each one with a different anchor. Our results suggest that in the short‐selling position, behavioral biases, such as anchoring and uncertainty, impact the decision‐makers' bid prices.