The Impact of Naked Short Selling on the Securities Lending and Equity Market

Posted: 1 Jun 2020

See all articles by Steven Lecce

Steven Lecce

affiliation not provided to SSRN

Andrew Lepone

Macquarie University, Macquarie Business School

Michael D. McKenzie

The University of Sydney - Discipline of Finance; University of Cambridge - Cambridge Endowment for Research in Finance (CERF); Financial Research Network (FIRN)

Reuben Segara

University of Sydney Business School; Financial Research Network (FIRN)

Date Written: February 1, 2012

Abstract

This paper examines the impact of naked short selling on equity markets where it is restricted to securities on an approved list. Consistent with Miller's (1977) intuition, stocks with the highest dispersion of opinions and short sale constraints are the only stocks to exhibit significant and negative abnormal returns in the post-event period. We also find slightly higher stock return volatility and a small reduction in liquidity when naked short sales are allowed. Overall, it impairs market quality (liquidity and volatility), although there appears to be some improvement in price efficiency in stocks with high short sale constraints.

Keywords: Short Sale Constraints, Liquidity, Naked Short Selling, Australian Securities Exchange, Regression Discontinuity Design

JEL Classification: G10, G14

Suggested Citation

Lecce, Steven and Lepone, Andrew and McKenzie, Michael David and Segara, Reuben, The Impact of Naked Short Selling on the Securities Lending and Equity Market (February 1, 2012). Journal of Financial Markets, Vol. 15(1): 81-107, 2012, Macquarie Business School Research Paper , Available at SSRN: https://ssrn.com/abstract=3591994

Steven Lecce

affiliation not provided to SSRN

Andrew Lepone

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Michael David McKenzie

The University of Sydney - Discipline of Finance ( email )

Level 2 9 Castlereagh Street
Sydney, NSW 2000
Australia
+61 2 9114 0578 (Phone)
+61 2 9351 6461 (Fax)

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Reuben Segara (Contact Author)

University of Sydney Business School ( email )

Sydney
Australia
+61 2 9351 8790 (Phone)
+61 2 9351 6461 (Fax)

HOME PAGE: http://www.sydney.edu.au/business/about/our-people/academic-staff/reuben-segara.html

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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