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Aggressive Short Selling and Price ReversalsAndriy ShkilkoWilfrid Laurier University Bonnie F. Van NessUniversity of Mississippi - Department of Finance Robert A. Van NessUniversity of Mississippi - Department of Finance March 1, 2008 AFA 2008 New Orleans Meetings Paper Abstract: We show that short selling may, occasionally, cause excessive price pressure. We study large negative price reversals that occur on no-news days and find that short selling during such reversals is abnormally aggressive and substantially increases the magnitude of price declines. This negative effect on prices extends beyond a mere selling pressure from aggressive sell orders. Consistent with extant theories of predatory trading, price reversals are also accompanied by aggressive non-short selling. Large price reversals are more likely to occur in the stocks for which short selling restrictions are lifted; however, even when restrictions apply, traders often successfully circumvent them.
Number of Pages in PDF File: 46 Keywords: Short selling, price reversals, speculative and predatory trading, order imbalances JEL Classification: G14, G19 working papers seriesDate posted: March 21, 2007 ; Last revised: February 7, 2011Suggested CitationContact Information
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