Single Stock Futures as a Substitute for Short Sales: Evidence from Microstructure Data

21 Pages Posted: 11 Nov 2009

See all articles by Bartley R. Danielsen

Bartley R. Danielsen

North Carolina State University - Poole College of Management

Robert A. Van Ness

University of Mississippi - Department of Finance

Richard S. Warr

North Carolina State University

Date Written: 2009-05

Abstract

We examine how the introduction of single-stock futures impacts short sale costs and short interest levels in the underlying spot market. We find that short selling in the underling securities declines, after futures are introduced, the cost of borrowing stock for short sales declines and the available unborrowed supply of lendable shares increases. These results are consistent with futures exchanges providing a low-cost substitute market for establishing short positions. Microstructure evidence also suggests that the lower cost and greater ease of short selling via futures markets draws informed traders from the spot market.

Suggested Citation

Danielsen, Bartley R. and Van Ness, Robert A. and Warr, Richard S., Single Stock Futures as a Substitute for Short Sales: Evidence from Microstructure Data (2009-05). Journal of Business Finance & Accounting, Vol. 36, Issue 9-10, pp. 1273-1293, November/December 2009. Available at SSRN: https://ssrn.com/abstract=1503660 or http://dx.doi.org/10.1111/j.1468-5957.2009.02159.x

Bartley R. Danielsen (Contact Author)

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States
919-513-3003 (Phone)

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

Richard S. Warr

North Carolina State University ( email )

BOX 7229
Raleigh, NC 27695-7229
United States
919-513-4646 (Phone)
919-515-6943 (Fax)

HOME PAGE: http://www4.ncsu.edu/~rswarr/

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