Equity Short Sales and Options: Complements or Substitutes?

84 Pages Posted: 16 Jul 2015 Last revised: 15 Jan 2017

Multiple version iconThere are 3 versions of this paper

Date Written: January 14, 2017

Abstract

This paper studies whether equity short sales and options are complements or substitutes and finds that they are substitutes when the underlying market faces short-selling constraints. This substitutability is associated with implications for stock price volatility and stock market liquidity: Stocks that are subject to short-sale restrictions and have exchange-traded options are more volatile and less liquid than both constrained stocks without options and unconstrained stocks. Traders predominantly use at-the-money options to substitute equity short sales.

Keywords: Trading restrictions, Short selling, Derivatives, Regulation

JEL Classification: G10, G14, G18

Suggested Citation

Haas, Marlene, Equity Short Sales and Options: Complements or Substitutes? (January 14, 2017). Available at SSRN: https://ssrn.com/abstract=2630944 or http://dx.doi.org/10.2139/ssrn.2630944

Marlene Haas (Contact Author)

Independent

No Address Available

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