Short Constraints are Persistent Constraints

46 Pages Posted: 21 Aug 2017 Last revised: 7 Jun 2018

See all articles by Jesse Blocher

Jesse Blocher

Vanderbilt University - Finance

Chi Zhang

University of Massachusetts Lowell

Date Written: December 7, 2017


Short selling constraints predict negative stock returns at the monthly frequency, but is it a monthly phenomenon? We show that short selling constraints are persistent, lasting nine months on average, and therefore measured subsequent negative returns cannot be due primarily to an easing of these constraints. Instead, negative returns from short constrained stocks result primarily because stock owners sell the constrained stock. Many common measures of short selling constraints in the literature actually measure persistent short selling constraints. 43.6% of all traded firms experience a persistent short-selling constraint episode lasting at least two months. Because persistent stock overpricing is predictable over long periods of time, CEOs and other insiders may be able to exploit it more easily.

Keywords: Securities Lending, Short Selling, Limits to Arbitrage, Anomalies

JEL Classification: G12, G14, G23

Suggested Citation

Blocher, Jesse and Zhang, Chi, Short Constraints are Persistent Constraints (December 7, 2017). Vanderbilt Owen Graduate School of Management Research Paper No. 3020309, Available at SSRN: or

Jesse Blocher (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Chi Zhang

University of Massachusetts Lowell ( email )

Pulichino Tong Building
Manning School of Business
Lowell, MA 01854
United States

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