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Efficiency and the Bear: Short Sales and Markets around the World


Arturo Bris


IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance

William N. Goetzmann


Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Ning Zhu


China Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management

September 2004

Yale ICF Working Paper No. 02-45; EFA 2003 Annual Conference; AFA 2004 San Diego Meetings; 14th Annual Conference on Financial Economics & Accounting

Abstract:     
We analyze cross-sectional and time series information from forty-six equity markets around the world, to consider whether short sales restrictions affect the efficiency of the market, and the distributional characteristics of returns to individual stock and market indices. We construct two measures of price efficiency that quantify the asymmetric response of individual stock returns to negative vs. positive information, and find that prices incorporate information faster in countries where short sales are allowed and practiced. This evidence is consistent with more efficient price discovery at the individual security level. A common conjecture by regulators is that short sales restrictions can reduce the relative severity of a market panic. We test this conjecture by examining the skewness of market returns. We find some evidence that in markets where short selling is either prohibited or not practices, market returns display significantly less negative skewness. However, at the individual stock level, short sales restrictions appear to make no difference.

Number of Pages in PDF File: 69

JEL Classification: F36, G15, G28

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Date posted: October 6, 2004  

Suggested Citation

Bris, Arturo and Goetzmann, William N. and Zhu, Ning, Efficiency and the Bear: Short Sales and Markets around the World (September 2004). Yale ICF Working Paper No. 02-45; EFA 2003 Annual Conference; AFA 2004 San Diego Meetings; 14th Annual Conference on Financial Economics & Accounting. Available at SSRN: http://ssrn.com/abstract=357800

Contact Information

Arturo Bris (Contact Author)
IMD International ( email )
Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Yale University - International Center for Finance ( email )
Box 208200
New Haven, CT 06520
United States
William N. Goetzmann
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://viking.som.yale.edu

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Ning Zhu
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

Yale School of Management ( email )
135 Prospect Street
Box 208200
New Haven, CT 06520-8200
United States
HOME PAGE: http://pantheon.yale.edu/~nz26/
University of California, Davis - Graduate School of Management ( email )
One Shields Avenue
Davis, CA 95616
United States
530-752-3871 (Phone)
530-752-2924 (Fax)
HOME PAGE: http://www.gsm.ucdavis.edu/Faculty/Zhu/
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