Short-Selling Constraints and Supply Effects

55 Pages Posted: 22 Jun 2020

See all articles by Ioannis V. Floros

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance

Hideaki Kiyoshi Kato

Nagoya University - Graduate School of Economics

Ajai K. Singh

Department of Finance, University of Central Florida

Katsushi Suzuki

Hitotsubashi University - Graduate School of International Corporate Strategy

Date Written: June 10, 2020

Abstract

Japanese markets have unique institutional attributes, which provide an ideal laboratory for investigating potential supply effects. These regulatory factors permit an examination of issue-day price effects, at the influx of additional shares from equity offerings, free of simultaneous release of new information. Moreover, Japanese regulations permit a clean identification of stocks with and without short-sales constraints. We posit that trading constraints engender a supply effect. Indeed, a supply effect is experienced by short-sale constrained stocks: Consistent with downward sloping demand curves, issue-day returns are significantly negative and, negatively related to the offers’ relative size, only for trading restricted stocks.

Keywords: Differential Short-Selling Constraints, Increased Supply, Downward-Sloping Demand Curve, Relative Offer Size

JEL Classification: G14, G15, G32

Suggested Citation

Floros, Ioannis V. and Kato, Hideaki K. and Singh, Ajai K. and Suzuki, Katsushi, Short-Selling Constraints and Supply Effects (June 10, 2020). Available at SSRN: https://ssrn.com/abstract=3623738 or http://dx.doi.org/10.2139/ssrn.3623738

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance ( email )

Milwaukee, WI 53201-0742
United States

Hideaki K. Kato

Nagoya University - Graduate School of Economics ( email )

1 Furo-cho
Chikusa-ku
Nagoya 464-8601, 464-8601
Japan
+81-52-789-4928 (Phone)
+81-52-789-4928 (Fax)

Ajai K. Singh (Contact Author)

Department of Finance, University of Central Florida ( email )

College of Business Administration
12744 Pegasus Drive
Orlando, FL 32816
United States
407-823-0761 (Phone)
407-823-6676 (Fax)

Katsushi Suzuki

Hitotsubashi University - Graduate School of International Corporate Strategy ( email )

2-1-2 Hitotsubashi
Chiyoda-ku,
Tokyo, 101-8439
Japan

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