Stock Price Crashes and Short-Selling Cost

63 Pages Posted: 30 Mar 2016 Last revised: 29 Aug 2023

See all articles by Eric C. Chang

Eric C. Chang

University of Hong Kong - School of Business

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Xiaorong Ma

University of Macau, Faculty of Business Administration

Date Written: August 2023

Abstract

We find that stock price crash risk is positively associated with lagged equity lending fee and fee risk. This positive relation is stronger for the stocks with a lower short interest level and higher information uncertainty. Our results are robust to using alternative measures of price crash risk and equity lending market conditions. We also find similar results when we adopt a fuzzy regression-discontinuity design based on Russell index reconstitution and a differences-indifferences methodology based on Reg SHO Pilot Program. Overall, our findings indicate that the improvement in equity lending market conditions leads to a lower stock price crash risk.

Keywords: stock price crash risk, short selling risk, lending fee, fee risk, information uncertainty, short interest

JEL Classification: G10, G12, G20

Suggested Citation

Chang, Eric Chieh C. and Lin, Tse-Chun and Ma, Xiaorong, Stock Price Crashes and Short-Selling Cost (August 2023). Available at SSRN: https://ssrn.com/abstract=2755170 or http://dx.doi.org/10.2139/ssrn.2755170

Eric Chieh C. Chang

University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Tse-Chun Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Xiaorong Ma

University of Macau, Faculty of Business Administration ( email )

Macau

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