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Testing the Effects of Short-Selling Restrictions on Asset Prices

38 Pages Posted: 23 Aug 2012 Last revised: 4 Jun 2014

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Rodrigo De-Losso

University of Sao Paulo (USP) - Department of Economics

Alan De Genaro

University of Sao Paulo (USP) - Department of Economics

Bruno Giovannetti

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Date Written: June 3, 2014

Abstract

Testing the effects of short-selling restrictions on asset prices is challenging: shifts in stock lending supply, the standard proxy for shifts in short-selling restrictions, usually are not observed directly. This paper takes advantage of a unique dataset that contains actual shifts in the lending supply curve for several stocks on the Brazilian market. The dataset comprises daily information from January 2009 to July 2011 from the whole stock lending market in Brazil. We fi…nd that short-selling restrictions generate overpricing and that this effect increases with greater dispersion of investor opinion, consistent with a number of theoretical studies.

Keywords: short-selling restrictions, stock lending supply, asset prices

JEL Classification: G01, G12

Suggested Citation

Chague, Fernando and De-Losso, Rodrigo and Genaro, Alan De and Giovannetti, Bruno, Testing the Effects of Short-Selling Restrictions on Asset Prices (June 3, 2014). Available at SSRN: https://ssrn.com/abstract=2135285 or http://dx.doi.org/10.2139/ssrn.2135285

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

Rodrigo De-Losso

University of Sao Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-900
Brazil
551130916070 (Phone)

Alan De Genaro

University of Sao Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-900
Brazil

Bruno Giovannetti (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva, 474, 10o andar
Sao Paulo, Sao Paulo 01332000
Brazil

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