The Costs and Benefits of Short Sale Disclosure

49 Pages Posted: 24 Jul 2013 Last revised: 5 Nov 2015

See all articles by Truong X. Duong

Truong X. Duong

Iowa State University - Department of Accounting and Finance

Zsuzsa R. Huszar

National University of Singapore ; Central European University

Takeshi Yamada

Australian National University (ANU)

Date Written: October 29, 2014

Abstract

In this study, we examine the impact of a market-wide mandatory disclosure policy on short selling on the Tokyo Stock Exchange. We find that average short selling slightly declined while investors’ shorting strategies changed significantly in response to the disclosure. Previously highly shorted stocks were shorted less and shorting activity shifted toward smaller and riskier stocks, suggesting that retail investors became the more likely short sellers. Short sales became more trend-chasing, prices became less informative, and short-term price volatility increased. Overall, the pricing efficiency benefits of short selling declined after the mandatory disclosure policy.

Keywords: institutional traders, market efficiency, pricing efficiency, short selling

JEL Classification: G1, G12, G14

Suggested Citation

Duong, Truong X. and Huszar, Zsuzsa R. and Yamada, Takeshi, The Costs and Benefits of Short Sale Disclosure (October 29, 2014). Journal of Banking and Finance, Volume 53, Pages 124-139, 2015, Available at SSRN: https://ssrn.com/abstract=2297680 or http://dx.doi.org/10.2139/ssrn.2297680

Truong X. Duong

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Zsuzsa R. Huszar (Contact Author)

National University of Singapore ( email )

Business School
15 Kent Ridge Drive
Singapore, 117592
Singapore
+65 6516 8017 (Phone)
+65 6779 2083 (Fax)

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

Takeshi Yamada

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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