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http://ssrn.com/abstract=2296992
 
 

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The Effect of Short-Sale Constraints on Default Prediction around the World


Mark G. Maffett


University of Chicago - Booth School of Business

Edward L. Owens


University of Rochester - Simon School of Business

Anand Srinivasan


National University of Singapore - Department of Finance

May 28, 2014

Simon School Working Paper No. FR 13-22

Abstract:     
We examine how short-sale constraints affect the accuracy of default prediction. Consistent with short selling improving the informational efficiency of stock prices, on average, we show that overall predictive accuracy is greater in countries where short selling is less constrained. However, in countries with fewer short-sale constraints, predictive accuracy with respect to non-default observations is lower, particularly during periods of high macroeconomic uncertainty, which suggests an informational cost of short selling. Consistent with prices being less efficient where short selling is constrained, the incorporation of financial statement data mitigates the loss in predictive accuracy, particularly where transparency is high.

Number of Pages in PDF File: 66

Keywords: default prediction, short selling constraints, financial reporting transparency

JEL Classification: G14, G15, G33, G38, M41

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Date posted: July 23, 2013 ; Last revised: May 29, 2014

Suggested Citation

Maffett, Mark G. and Owens, Edward L. and Srinivasan, Anand, The Effect of Short-Sale Constraints on Default Prediction around the World (May 28, 2014). Simon School Working Paper No. FR 13-22. Available at SSRN: http://ssrn.com/abstract=2296992 or http://dx.doi.org/10.2139/ssrn.2296992

Contact Information

Mark G. Maffett (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

Edward L. Owens
University of Rochester - Simon School of Business ( email )
Rochester, NY 14627
United States
585-275-1079 (Phone)
Anand Srinivasan
National University of Singapore - Department of Finance ( email )
Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
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