Toward Understanding Short‐Selling Activity: Demand and Supply

28 Pages Posted: 6 Oct 2020

See all articles by Adrian (Wai-kong) Cheung

Adrian (Wai-kong) Cheung

Flinders University

Hung Wan Kot

University of Macau

Eric F.Y. Lam

Hong Kong Baptist University (HKBU)

Harry Leung

Cheung Kong Graduate School of Business

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Date Written: September 1, 2020

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

Suggested Citation

Cheung, Adrian and Kot, Hung Wan and Lam, Eric F.Y. and Leung, Harry, Toward Understanding Short‐Selling Activity: Demand and Supply (September 1, 2020). Accounting & Finance, Vol. 60, Issue 3, pp. 2203-2230, 2020, Available at SSRN: https://ssrn.com/abstract=3704344 or http://dx.doi.org/10.1111/acfi.12430

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

P.O. Box 3001
Macau

Eric F.Y. Lam

Hong Kong Baptist University (HKBU)

Department of Economics
Kowloon, Hong Kong
Hong Kong

Harry Leung

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

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