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Short Sale Constraints and Stock Returns


Charles M. Jones


Columbia Business School - Finance and Economics

Owen A. Lamont


Harvard University - Department of Economics

October 2001

NBER Working Paper No. w8494

Abstract:     
Stocks can be overpriced when short sale constraints bind. We study the costs of short selling equities, 1926-1933, using the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is high. We find that stocks that are expensive to short or which enter the borrowing market have high valuations and low subsequent returns, consistent with the overpricing hypothesis. Size-adjusted returns are one to two percent lower per month for new entrants, and despite high costs it is profitable to short them.

Number of Pages in PDF File: 55

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Date posted: September 29, 2001  

Suggested Citation

Jones, Charles M. and Lamont, Owen A., Short Sale Constraints and Stock Returns (October 2001). NBER Working Paper No. w8494. Available at SSRN: http://ssrn.com/abstract=285614

Contact Information

Charles M. Jones (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)
HOME PAGE: http://www.columbia.edu/~cj88/

Owen A. Lamont
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
Feedback to SSRN (Beta)


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