What Determines the Level of Short-Selling Activity?

Financial Management, 2007, Vol 36, Issue 4, 123-141.

30 Pages Posted: 20 Aug 2007 Last revised: 11 May 2016

See all articles by Hung Wan Kot

Hung Wan Kot

University of Macau - Department of Finance and Business Economics

Abstract

I test several explanations for the short-sale trading for a sample of the NYSE and the Nasdaq stocks during the 1988-2002 period. I find that short-selling activity is positively related to arbitrage opportunities and hedging demand, and negatively related to previous short-term returns. ANOVA analysis shows that the stock option listing is the most dominant variable in explaining the short-selling level. The short-selling level is more positively related to the dummy variables for convertible debt and option listing during the bubble period, suggesting that there was more room for arbitrage opportunity during that volatile period.

Keywords: short selling, investor behaviours, Nasdaq bubble

JEL Classification: G10, G14

Suggested Citation

Kot, Hung Wan, What Determines the Level of Short-Selling Activity?. Financial Management, 2007, Vol 36, Issue 4, 123-141.. Available at SSRN: https://ssrn.com/abstract=1007981

Hung Wan Kot (Contact Author)

University of Macau - Department of Finance and Business Economics ( email )

Macau

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