On the Importance of Fiscal Space: Evidence from Short Sellers During the Covid-19 Pandemic

1 Pages Posted: 23 Sep 2021

See all articles by Stefan Greppmair

Stefan Greppmair

Deutsche Bundesbank

Stephan Jank

Deutsche Bundesbank

Esad Smajlbegovic

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: 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 (2021). Deutsche Bundesbank Discussion Paper No. 29/2021, Available at SSRN: https://ssrn.com/abstract=3929188 or http://dx.doi.org/10.2139/ssrn.3929188

Stefan Greppmair (Contact Author)

Deutsche Bundesbank ( email )

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

Stephan Jank

Deutsche Bundesbank ( email )

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

Esad Smajlbegovic

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/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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