On the Importance of Fiscal Space: Evidence from Short Sellers during the COVID-19 Pandemic

76 Pages Posted: 23 Jul 2020 Last revised: 20 May 2021

See all articles by Stefan Greppmair

Stefan Greppmair

Deutsche Bundesbank

Stephan Jank

Deutsche Bundesbank; University of Cologne - Centre for Financial Research (CFR)

Esad Smajlbegovic

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: May 20, 2021

Abstract

Using the exogenous shock of the COVID-19 pandemic, we study how informed market participants evaluate fiscal space. Short-selling activity shifted upon the onset of the pandemic towards companies with low financial flexibility only in countries with limited fiscal space. Among these companies, short sellers targeted especially those that generate their revenue mainly in the domestic market. These short sellers entered their positions before the market crash, generating thereby a significant abnormal return. These findings support the notion that short sellers bet on the inability of governments with budgetary constraints to provide sufficient stimulus to their economy in times of crises.

Keywords: COVID-19 pandemic, short selling, fiscal space, institutional investors

JEL Classification: G14, G23, H30

Suggested Citation

Greppmair, Stefan and Jank, Stephan and Smajlbegovic, Esad, On the Importance of Fiscal Space: Evidence from Short Sellers during the COVID-19 Pandemic (May 20, 2021). Available at SSRN: https://ssrn.com/abstract=3638584 or http://dx.doi.org/10.2139/ssrn.3638584

Stefan Greppmair

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stephan Jank

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Esad Smajlbegovic (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

HOME PAGE: http://sites.google.com/site/esmajlbe/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
291
Abstract Views
2,160
rank
127,891
PlumX Metrics