Single Stock Futures as a Substitute for Short Sales: Evidence from Microstructure Data
Bartley R. Danielsen
North Carolina State University - Poole College of Management
Robert A. Van Ness
University of Mississippi - Department of Finance
Richard S. Warr
North Carolina State University
Journal of Business Finance & Accounting, Vol. 36, Issue 9-10, pp. 1273-1293, November/December 2009
We examine how the introduction of single-stock futures impacts short sale costs and short interest levels in the underlying spot market. We find that short selling in the underling securities declines, after futures are introduced, the cost of borrowing stock for short sales declines and the available unborrowed supply of lendable shares increases. These results are consistent with futures exchanges providing a low-cost substitute market for establishing short positions. Microstructure evidence also suggests that the lower cost and greater ease of short selling via futures markets draws informed traders from the spot market.
Number of Pages in PDF File: 21Accepted Paper Series
Date posted: November 11, 2009
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