Short Selling Risk
University of California, San Diego (UCSD) - Rady School of Management
Adam V. Reed
University of North Carolina Kenan-Flagler Business School
Washington University in Saint Louis - Olin Business School
October 22, 2013
Western Finance Association (WFA), 2014
Washington University in Saint Louis Olin Business School Working Paper No. 13/004
UNC Kenan-Flagler Research Paper No. 2312625
Short sellers face a number of unique risks, such as the risk that stock loans become expensive and the risk that stock loans are recalled. We show that these short selling risks affect prices among the cross-section of stocks. Stocks with more short selling risk have lower returns, less price efficiency, and less short selling. Overall, short selling risk adds to the limits of arbitrage and may help explain the low short-interest puzzle (Lamont and Stein (2004)) and the short interest return anomaly (Boehmer, Huszar and Jordan (2009)).
Number of Pages in PDF File: 50
Keywords: short selling risk, equity lending, market efficiency, limits to arbitrage, over-the-counter markets, short sale
JEL Classification: G12, G14working papers series
Date posted: August 20, 2013 ; Last revised: May 5, 2014
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