Short-Selling Constraints and Supply Effects
55 Pages Posted: 22 Jun 2020
Date Written: June 10, 2020
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: Suggested Citation