Abstract

http://ssrn.com/abstract=1445634
 
 

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When Constraints Bind


Karl B. Diether


Tuck School of Business at Dartmouth College

Ingrid M. Werner


The Ohio State University - Fisher College of Business

July 5, 2011

Charles A. Dice Center Working Paper No. 2009-15
Fisher College of Business Working Paper No. 2009-03-015
Tuck School of Business Working Paper No. 2009-66

Abstract:     
We create proxies for constrained supply of lendable shares by combining unique data on loan fees, stock lending activity, and failures to deliver to examine how contrarian short-sale strategies are affected by constraints. Constraints affect roughly one-third of the cross- section of stocks and result in a significant reduction in the contrarian response of short sellers to past returns. When short sellers’ contrarian strategies are constrained, the market is significantly less efficient. Furthermore, the previously documented relation between short selling activity and future returns breaks down for the most constrained stocks.

Number of Pages in PDF File: 49

Keywords: short-sales, short-sellers, contrarian, Nasdaq, Reg SHO

JEL Classification: G1, G12, G14

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Date posted: August 15, 2009 ; Last revised: September 29, 2011

Suggested Citation

Diether, Karl B. and Werner, Ingrid M., When Constraints Bind (July 5, 2011). Charles A. Dice Center Working Paper No. 2009-15; Tuck School of Business Working Paper No. 2009-66. Available at SSRN: http://ssrn.com/abstract=1445634 or http://dx.doi.org/10.2139/ssrn.1445634

Contact Information

Karl B. Diether (Contact Author)
Tuck School of Business at Dartmouth College ( email )
Hanover, NH 03755
United States
Ingrid M. Werner
The Ohio State University - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

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