A Synthesized Model of Short Selling Constraints and Their Impact on Stock Returns

27 Pages Posted: 31 May 2016 Last revised: 9 Jan 2018

See all articles by Jose A. Gutierrez

Jose A. Gutierrez

Sam Houston State University

Robert Stretcher

Sam Houston State University

Steve Johnson

Sam Houston State University

Date Written: May 28, 2016

Abstract

This paper presents a synthesized model explaining the returns of short-sale constrained stocks. We combine short-sale constraints that were previously treated individually or in pairs into a more fully specified model. The model is also specified in generally falling versus generally rising markets, and in consideration of relative effects for large/mid-cap versus small/micro-cap firms. There is evidence that a more fully specified model provides additional insight with less factor omission bias than prior models. Additionally, our results also indicate pricing differences between least versus most short-sale constrained stocks.

Keywords: Short-sell constraints, Asymmetry, Relative short interest, Institutional ownership, Options, Dividends

JEL Classification: G11, G12, G14, G17

Suggested Citation

Gutierrez, Jose A. and Stretcher, Robert and Johnson, Steve, A Synthesized Model of Short Selling Constraints and Their Impact on Stock Returns (May 28, 2016). Journal of Economics and Finance, 2018, 42, 191-210. Available at SSRN: https://ssrn.com/abstract=2785987 or http://dx.doi.org/10.2139/ssrn.2785987

Jose A. Gutierrez (Contact Author)

Sam Houston State University ( email )

1803 Ave I
Huntsville, TX 77341
United States

Robert Stretcher

Sam Houston State University ( email )

1803 Ave I
Huntsville, TX 77341
United States
936-294-3308 (Phone)

Steve Johnson

Sam Houston State University ( email )

1803 Ave I
Huntsville, TX 77341
United States

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