Skewness, Short Interest, and the Efficiency of Stock Prices

31 Pages Posted: 9 Jan 2016

See all articles by Benjamin M. Blau

Benjamin M. Blau

Utah State University - Huntsman School of Business

Ryan Whitby

Utah State University - Huntsman School of Business

Date Written: January 7, 2016

Abstract

In this study, we examine the relationship between return skewness, short interest, and the efficiency of stock prices. Given that preferences for skewness have been shown to impact asset prices, we examine how skewness relates to market efficiency. We find that stocks with positive skewness and/or idiosyncratic skewness are less efficient than other stocks, which might be explained by overvaluation caused by investor preferences for positive skewness. Next, we document that short interest reduces both total skewness and idiosyncratic skewness. Finally, while prior research has shown that short selling can improve the efficiency of markets generally, we show that short interest’s ability to improve market efficiency is strongest in stocks with the highest skewness.

Keywords: Skewness, Short-Sale Constraints, Short Interest, Price Delay, Market Efficiency

Suggested Citation

Blau, Benjamin M. and Whitby, Ryan, Skewness, Short Interest, and the Efficiency of Stock Prices (January 7, 2016). Available at SSRN: https://ssrn.com/abstract=2712530 or http://dx.doi.org/10.2139/ssrn.2712530

Benjamin M. Blau (Contact Author)

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322
United States

Ryan Whitby

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322-3500
United States
435.797.9495 (Phone)

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