Naked Short Selling and the Market Impact of Fails-to-Deliver: Evidence from the Trading of Real Estate Investment Trusts

Posted: 17 Oct 2014

See all articles by Erik Devos

Erik Devos

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics

Michael D. McKenzie

The University of Sydney - Discipline of Finance; University of Cambridge - Cambridge Endowment for Research in Finance (CERF); Financial Research Network (FIRN)

James Upson

University of Texas at El Paso

Date Written: October 2, 2014

Abstract

Naked short selling and purposeful fails-to-deliver have been identified in the popular press and by the SEC as contributing factors to the stock market decline in 2008. We investigate the market impact of the announcement that fails-to-deliver have occurred for a sample of real estate investment trusts (REITs). We find that fails-to-deliver are most consistent with a one to three day delivery difference between the short sale and offsetting covering trades. These results hold independent of the type of REIT (equity or mortgage REITs). Overall, our findings suggest that naked short selling and purposeful fails-to-deliver may not have contributed much to REIT losses during the financial crisis.

Keywords: Short selling; Fails-to-deliver; Financial crisis; Regulation; REITs

JEL Classification: G01, G12, G14, G18

Suggested Citation

Devos, Erik and McInish, Thomas H. and McKenzie, Michael David and Upson, James, Naked Short Selling and the Market Impact of Fails-to-Deliver: Evidence from the Trading of Real Estate Investment Trusts (October 2, 2014). Journal of Real Estate Finance and Economics, Vol. 49, No. 4, 2014. Available at SSRN: https://ssrn.com/abstract=2504703

Erik Devos (Contact Author)

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance ( email )

500 W. University Ave.
El Paso, TX 79968
United States
915 747 7770 (Phone)

HOME PAGE: http://utminers/utep.edu/hdevos

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-4662 (Phone)
901-678-3006 (Fax)

Michael David McKenzie

The University of Sydney - Discipline of Finance ( email )

Level 2 9 Castlereagh Street
Sydney, NSW 2000
Australia
+61 2 9114 0578 (Phone)
+61 2 9351 6461 (Fax)

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

James Upson

University of Texas at El Paso ( email )

500 West University
El Paso, TX 79968-0545
United States

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