Abstract

http://ssrn.com/abstract=1325551
 
 

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Skewness, Short Sale Constraints, and the Asymmetric Price Response to Earnings Announcements


Benjamin M. Blau


Utah State University - Huntsman School of Business

J. Michael Pinegar


Brigham Young University - Marriott School of Management

Ryan J. Whitby


Utah State University

July 1, 2013


Abstract:     
Much of traditional asset pricing theory relies on the assumption of normality in the return distribution and mean-variance efficiency. However, empirical tests show return skewness at both the market level and for individual stocks. In this study, we follow a growing body of research that examines the effects of short sale constraints on stock price responses to market signals and explore how these factors relate to return skewness. Consistent with theory in Xu (2007), we find that price responses following earnings announcements are more convex for firms that have tighter short sale constraints and for firms where there appears to be greater disagreement among investors. We also find that price convexity is a key determinant in contemporaneous skewness. Lastly, we find that, after controlling for short sale constraints, short interest is negatively related to skewness. This relation is consistent with the notion that short selling can reduce both the asymmetric price response to earnings announcements and skewness in individual stock returns and help normalize return distributions.

Number of Pages in PDF File: 38

Keywords: skewness, earnings announcements, short sale constraints

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Date posted: January 12, 2009 ; Last revised: July 1, 2013

Suggested Citation

Blau, Benjamin M. and Pinegar, J. Michael and Whitby, Ryan J., Skewness, Short Sale Constraints, and the Asymmetric Price Response to Earnings Announcements (July 1, 2013). Available at SSRN: http://ssrn.com/abstract=1325551 or http://dx.doi.org/10.2139/ssrn.1325551

Contact Information

Benjamin M. Blau (Contact Author)
Utah State University - Huntsman School of Business ( email )
3500 Old Main Hill
Logan, UT 84322
United States
J. Michael Pinegar
Brigham Young University - Marriott School of Management ( email )
Provo, UT 84602
United States
801-422-3088 (Phone)
801-422-0108 (Fax)
Ryan J. Whitby
Utah State University ( email )
3500 Old Main Hill
Logan, UT 84322-3500
United States
435.797.9495 (Phone)
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