Efficiency and the Bear: Short Sales and Markets Around the World

44 Pages Posted: 8 Feb 2003  

Arturo Bris

IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Ning Zhu

China Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: February 2003

Abstract

We analyze cross-sectional and time series information from forty-seven equity markets around the world, to consider whether short-sales restrictions affect the efficiency of the market, and the distributional characteristics of returns to individual stocks and market indices. Using the approach developed in Morck et.al. (2000) we find significantly more cross-sectional variation in equity returns in markets where short selling is feasible and practiced, controlling for a host of other factors. This evidence is consistent with more efficient price discovery at the individual security level. A common conjecture by regulators is that short-selling restrictions can reduce the relative severity of a market panic. We test this conjecture by examining the skewness of market returns. We find that in markets where short selling is either prohibited or not practiced, returns display significantly less negative skewness, and the frequency of extreme negative returns is lower. On the other hand, the overall volatility of individual returns and market returns is higher.

Suggested Citation

Bris, Arturo and Goetzmann, William N. and Zhu, Ning, Efficiency and the Bear: Short Sales and Markets Around the World (February 2003). NBER Working Paper No. w9466. Available at SSRN: https://ssrn.com/abstract=375318

Arturo Bris

IMD International ( email )

Ch. de Bellerive 23
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European Corporate Governance Institute (ECGI)

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Yale University - International Center for Finance ( email )

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William N. Goetzmann (Contact Author)

Yale School of Management - International Center for Finance ( email )

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National Bureau of Economic Research (NBER)

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Ning Zhu

China Academy of Financial Research (CAFR)

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Shanghai P.R.China, 200030
China

Yale School of Management ( email )

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HOME PAGE: http://pantheon.yale.edu/~nz26/

University of California, Davis - Graduate School of Management ( email )

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United States
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HOME PAGE: http://www.gsm.ucdavis.edu/Faculty/Zhu/

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