Toward Understanding Short-Selling Activity: Demand and Supply

Accounting and Finance, Forthcoming

Posted: 19 Jan 2019

See all articles by Adrian (Wai-kong) Cheung

Adrian (Wai-kong) Cheung

Flinders University

Hung Wan Kot

University of Macau - Department of Finance and Business Economics

FY Eric Lam

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Harry Leung

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: 2019

Abstract

We investigate the demand and supply sides of short-selling activity in the US from 2003 to 2015. We construct four types of demand-side variables from fundamentals, and three types of supply-side variables from institutional ownership (IO) and stock loan data. The supply-side variables play a more important role in determining short selling than the demand-side variables. The IO of quasi-indexer type is the most important supply-side variable, while the arbitrage and hedging with options market is the most important demand-side variable. Finally, a portfolio sorting approach confirms the same results.

Keywords: Short selling; Demand and supply; Institutional ownership; Borrowing cost

JEL Classification: G01, G11, G14

Suggested Citation

Cheung, Adrian and Kot, Hung Wan and Lam, Full Yet Eric Campbell and Leung, Harry, Toward Understanding Short-Selling Activity: Demand and Supply (2019). Accounting and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3312842

Adrian Cheung (Contact Author)

Flinders University ( email )

GPO Box 2100
Adelaide S.A. 5001, SA 5063
Australia
+618 8201 5831 (Phone)

Hung Wan Kot

University of Macau - Department of Finance and Business Economics ( email )

Macau

Full Yet Eric Campbell Lam

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central
Hong Kong
China

Harry Leung

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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