A Fuller Theory of Short Selling

Platt, Harlan

doi:10.2139/ssrn.301321

Abstract

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A Fuller Theory of Short Selling

Harlan D. Platt

Northeastern University

February 20, 2002

Journal of Asset Management, Vol. 5, No. 1

Abstract:
The expression "greed and fear move markets" is commonly cited to explain trading activity. In this paper, greed and fear form the intellectual basis of a theory explaining short selling activity. The theory describes two independent demands for shares to short sell, one based on future price expectations and one based on financial distress. With the number of shares available to be borrowed rigidly determined by institutional factors, the theory focuses on the quantity of shares shorted. An empirical test of the theory is conducted using a sample of bankrupt companies. The theory's implications are supported by the data and lend strong credence to the importance of greed and fear among short sellers.

Number of Pages in PDF File: 34

Keywords: Short Selling, Behavioral Finance, Fear and Greed

JEL Classification: G12, G11, G33

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Date posted: February 26, 2002 ; Last revised: December 5, 2012

Suggested Citation

Platt, Harlan D., A Fuller Theory of Short Selling (February 20, 2002). Journal of Asset Management, Vol. 5, No. 1. Available at SSRN: http://ssrn.com/abstract=301321 or http://dx.doi.org/10.2139/ssrn.301321

Contact Information

Harlan D. Platt (Contact Author)

Northeastern University ( email )

Boston, MA 02115
United States
617-373-4740 (Phone)
617-373-8798 (Fax)