Price Efficiency and Short Selling
Review of Finance Studies, Vol. 24, No. 3, pp. 821-852, 2011
41 Pages Posted: 4 Dec 2006 Last revised: 7 Mar 2011
Date Written: August 30, 2010
This article studies how stock price efficiency and the distribution of returns are affected by short-sale constraints. The study is based on a global data set that includes more than 12,600 stocks from 26 countries between 2005 and 2008. Our main findings are as follows. First, lending supply has a significant impact on efficiency. Stocks with higher short-sale constraints, measured by low lending supply, have lower price efficiency. Second, relaxing short-sales constraints is not associated with an increase in either price instability or occurrence of extreme negative returns.
Keywords: Short sales constraints, market efficiency, equity lending markets, extreme returns
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation