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Naked Short Selling and Market Returns

Posted: 6 Apr 2009 Last revised: 2 May 2012

Thomas Jason Boulton

Miami University

Marcus V. Braga-Alves

University of Akron

Date Written: May 1, 2011


We study persistent failures to deliver (fails) to better understand naked short sellers’ trading strategies, their ability to profit from their trades, and the market’s reaction to information about their activities. Contrary to recent claims that naked short sellers are momentum traders who drive down stock prices, we find that returns are typically positive just prior to periods of increased naked short selling that result in persistent fails and that returns generally remain positive for several weeks afterwards. Our results also suggest that stocks that experience persistent fails are susceptible to short squeezes, as shares move from a normal state where short exposure is established by borrowing and selling to a hard-to-borrow state where fails become a more attractive option for establishing short exposure.

Keywords: Failures to deliver, naked short selling, stock returns

JEL Classification: D02, G14, G28

Suggested Citation

Boulton, Thomas Jason and Braga-Alves, Marcus V., Naked Short Selling and Market Returns (May 1, 2011). Journal of Portfolio Management, Spring 2012, Vol. 8, No. 3, pp. 133-142.. Available at SSRN:

Thomas Jason Boulton (Contact Author)

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Marcus V. Braga-Alves

University of Akron ( email )

259 S. Broadway
Akron, OH 44325
United States

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