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This paper examines short-selling activity focusing on its behavior during non-normal times of occasional excesses in the Korean stock market. Using the methodology explained by Brunnermeier and Pederson (2005) and Shkilko et al. (2009; 2012), we first examine whether short-selling is predatory on those event days of large price reversals. Overall there is little predatory abnormal short-selling in the pre-rebound phase and we can observe active contrarian short-selling in the post-rebound phase. When we compared aggressiveness between short-selling and non-short-selling using order imbalance variables, we found that non-short selling is much more aggressive than short selling in the Korean stock market. From the observation of market liquidity measured by quoted spreads, we could find that market liquidity is somewhat limited during price decline stages while it slightly improves during price reversal phases. Also, using dynamic panel model, we test the influences of those variables on stock price changes and disaggregate the compound effect of short-selling reflected in trading volume itself into differentiated ones not only through pure trading channel but also through other complicated channels such as market sentiment change. Main findings from the regression results are as follows : In the Korean stock market, short sellers seem to behave as a contrarian trader rather than a momentum trader; seller-initiated aggressive trading, whether it is by short-selling or non-short-selling, leads to negative order imbalance and price decline; market liquidity is limited by short-selling and further pressure on price decline is added in the pre-rebound stage; and stock prices are affected not only through pure selling (buying) channel but also through other channels in the Korean stock market.

The reform and opening-up of capital market is valued for promoting sustainable development, while its impact presented as the form of deregulation of short-selling on the green innovation of enterprises in developing countries remains unclear. The purpose of this study is to outline the significance of gradual reform of financial markets in developing countries for low-carbon transformation and provide implications for achieving carbon peaking and carbon neutrality goals.

Based on the green subdivided patent data and financial data of China’s A-share listed companies, this paper takes the implementation of securities margin trading program as a quasi-natural experiment and applies the difference-in-differences (DID) model to examine the impact of deregulation of short-selling constraints on the enterprises’ green transformation.

The findings reveal that the initiating securities margin trading program significantly enhances the green innovation performance of enterprises. These findings are valid after performing a series of robustness tests such as the parallel trend test, the placebo test and the methods to exclude other policy interference. Mechanism analyses demonstrate a two-faceted effect of the securities margin trading program on the green innovation of enterprises, in which short-selling policy increases the pressure on capital market deregulation and meanwhile induces the environmental protection investment. The heterogeneity results demonstrate that the impulsive effect imposed by securities margin trading program is more significant in experimental group samples with characteristics of lower financing constraints, belonging to heavy polluting industries and possessing better environmental supervision capability.

First, previous studies have focused on the impact of financial policies implemented by banking institutions on the green innovation of enterprises, but few literatures have explored the validity of relaxing short-selling restrictions or opening the capital market in the field of enterprise’s green transformation in developing country. From the view of securities market reform, this paper broadens the incentive and supervision effects of the relaxation of short-selling control on enterprise’s green innovation performance after the implementation of securities financing and securities lending policy in China’s capital market. Second, previous studies have explored the impact of command-and-control environmental regulations, as well as market-incentivized environmental regulations such as green finance, low-carbon pilots and environmental tax reform, on the green transition of enterprises. Recently the role of the securities market in the green development of enterprises has received more attention in academia. The pilot of margin financing and securities lending is essentially a market-incentivized regulatory tool, but there is few in-depth research on how it affects the green innovation of enterprises. This paper enriches the research on whether the market incentive financial regulation policy can contribute to the green transformation of enterprises under the Porter hypothesis. Third, some previous studies used the ordinary panel regression model to explore the impact of financial policy on enterprise’s innovation performance. However, due to the potential endogenous problems of the estimated model, it might get biased conclusions. Therefore, based on the method of quasi-natural experiment, this paper selects the margin trading pilot policy as an exogenous shock to solve the endogenous or reverse causality problem in traditional measurement model and applies the DID model to study the relationship between core indicator variables.

The purpose of this paper is to examine the impact of short sale prospect on future income smoothing.

This study examines how short sale prospect impacts future income smoothing. This study follows prior research and uses two measures of income smoothing. One is the correlation between the change in prediscretionary income and the change in discretionary accruals. The other is the variability of earnings relative to the variability of cash flows.

This study finds that short sale prospect has a negative impact on future income smoothing. This finding is robust to use different measures of short sale prospect and income smoothing and to subsample tests. Additional analysis reveals that short sale prospect, by curbing income smoothing, reduces future stock price crash risk.

To the best of the authors’ knowledge, this study is the first to examine the impact of short selling on firms’ subsequent smoothing of reported income. This study contributes to the earnings quality literature by demonstrating the governance role of short selling on future earnings smoothness.

The purpose of this paper is to examine the efficacy of recent policy initiatives taken by the US Securities and Exchange Commission banning naked “short‐selling” of specific financial stocks. The paper also considers the merits of reinstating “uptick rule” 10a‐1, which prohibits short‐selling securities on a downtick.

The paper studies theoretical implications of short‐selling in a simple state‐claim model, reflecting varying amounts of short interest in a representative firm and noise trading in the market. Price discovery depends on the proportion of noise trading compared to rational short‐selling. The empirical analysis focuses on price volatility under short‐selling constraints employing simple regressions, EGARCH analysis and simulated price behavior under a hypothetical uptick rule.

The EGARCH results suggest short‐selling constraints had non‐uniform impacts on the persistence and leverage effects associated with price volatility. The corresponding price simulations indicate a hypothetical uptick rule might have helped stabilize price behavior in some cases, depending on the nature of the stochastic process and whether or not quantity constraints on short‐selling are binding.

The theoretical arguments and empirical findings suggest a “focused approach” to market regulation would be a more efficient means of discouraging trend chasing without compromising “informed trading” – that is to say, safeguarding price discovery and market liquidity without impeding arbitrage or confounding probability beliefs regarding firm survival. These conclusions are largely in accord with recent policy analysis and proposals outlined in Avgouleas.

The purpose of this paper is to investigate short‐selling around private investment in public equity (PIPE) issuances, for evidence of manipulative short‐selling by hedge funds.

The authors use the Regulation SHO short‐selling data in combination with information about hedge fund participation in traditional stock PIPE offerings from Sagient Research, and share price and trading volume data from the Center for Research in Security Prices (CRSP) to examine the relations among hedge fund participation, short‐selling levels and stock returns surrounding such offerings.

It is found that significantly less pre‐deal short‐selling occurs when hedge funds are included in the PIPE investor group, and adjusted returns for firms with hedge funds as investors are positive in the pre‐deal period and negative in the post‐deal period. Both of these findings are opposite of the patterns expected given manipulative short‐selling by hedge funds. Pre‐deal and post‐deal adjusted returns and PIPE discount are unrelated to pre‐deal short‐selling by hedge funds, findings inconsistent with manipulative short‐selling by these investors. The evidence suggests that most hedge funds that invest in traditional stock PIPEs do not engage in manipulative short‐selling around these deals.

This paper is the first, to the authors' knowledge, to examine hedge fund participation and daily short‐selling around traditional stock PIPE issuances. Previous studies focus on structured PIPE deals, which do not represent the majority of the PIPE market at present. The daily short selling data used in this study allow for detailed investigation of market behavior not afforded by monthly short interest data used in previous studies.

The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a sample of Chinese firms listed on the China and Hong Kong stock exchanges.

The sample consists of 67 Chinese cross-listed firms on A-share and H-share markets out of which 18 firms are allowed to be sold short/ traded on margin since March 2010. Using pre- and post-event period, the authors compare and contrast various market microstructure variables. The contributions of the home (A-share) and overseas (H-share) markets to the incorporation of new information into prices are calculated following the permanent-transitory approach of Gonzalo and Granger (1995) as well as the adverse selection component of Lin et al. (1995).

The findings indicate that for the group of Chinese cross-listed firms that are not allowed to be sold short or bought on margin, the home (A-share) market contributes more to the price discovery process over time. However, for the group of cross-listed firms that are eligible for short selling and margin trading, the authors observe no significant difference in the contribution of either A- or H-share markets to the price discovery. The contribution of home market for these firms is even lower around the announcement of major events. The authors further find that while the short sale activities appears to be informative, measured by the adverse selection (AS) component of spread, on the whole they have not led the A-share markets to be more informative.

The sample of cross-listed Chinese firms that are allowed to be sold short or bought on margin are rather limited. Hence, the results should be read with some caution.

The removal of short selling constraints appears to improve the contribution of the respective markets to the process price discovery, in the case for larger cross-listed firms.

The authors shed new lights on how the introduction of short selling and margin trading impacts on the price discovery of the Chinese cross-listed firms. A further contribution of the study is the use of high frequency data, while most of the previous studies on the Chinese markets use daily data.

The purpose of this paper is to investigate the effects of the 2008 SEC short‐sell moratorium on regional bank risk and return. The paper also examines the decline in “failures to deliver” securities in the wake of SEC short‐sell moratorium.

In total, six regional bank portfolios are derived and the beta coefficients from a CAPM model are estimated using the integrated generalized autoregressive conditional heteroskedasticity (IGARCH) method accounting for the short‐sell moratorium. Data on 110 regional banks in six US regions from January 2002 to December 30, 2011 are used to estimate the model.

The ban on naked short selling and the SEC short‐sell moratorium significantly increased individual bank risk for a majority of banks in six geographic regions, but also increased return in three of three regions. There was also reduced naked short selling as failures to deliver securities declined sharply after the September 2008 moratorium took effect.

Regional banks have generally not achieved the size needed to be deemed “too big to fail” by policy‐makers. Thus, policy changes such as the SEC short‐sell moratorium might be expected to have larger effects on regional banks than on larger banks, which might be shielded from the policy change by having achieved “too big to fail” status. The authors' results are consistent with research that has shown that short‐sell restrictions increase risk by reducing liquidity and trading volume.

The aim of this paper is to provide a review of the literature on short selling. In particular, it seeks to describe the history of short selling and anti-shorting laws. With respect to short-selling regulation, the main emphasis will be placed on the UK FSA’s regulatory action.

This paper reviews the history of short selling and the development of anti-shorting laws, particularly with regard to the UK market. It also analyses the distinct literature on short selling.

The paper argues that the development of anti-shorting laws shows that regulators are instituting a policy unfavourable to short sellers. The opposers of short selling may be seen as lacking ideas and having the tendency to ban anything they do not like. Short sellers, on the other hand, may be seen as the elite bodyguards of the financial market whose job is to get rid of overvalued stocks, and ultimately keep the market safe and efficient. For this reason, short sellers deserve our praise and thanks, not our hatred and opprobrium.

To the authors’ knowledge, this paper is the first to review the history of short selling and the development of anti-shorting laws, particularly with regard to the UK market.

The relationship between short selling, market volatility and liquidity remains an object of intensive research. However, empirical evidence is yet to provide a conclusive elucidation of this relationship by examining aspects of market fragmentation in the form of different market settings, different timing and different stocks under coverage, among others. This paper aims to contribute to the debate by investigating the impact of short selling on market volatility and liquidity in the Athens Exchange (ATHEX) under three different periods of short sales restrictions.

Two hypotheses are tested using econometric methodologies (co-integration and Granger-causality tools).

The empirical results indicate that when short selling is allowed, aggregate stock returns are in the short-term more volatile, but the liquidity of the market is not significantly affected. This might be the result of significant imbalances between supply and demand of stock caused by short-selling restrictions, leading to market price fluctuations.

The analysis of empirical evidence needs further expansion and association with institutional firm-level and country-level elements to provide a more comprehensive understanding of the impact of short selling on market volatility and liquidity.

Stock market regulation involving short-selling restrictions have different implications according to extent and degree of stringency of the restrictions as well as the market on which they are imposed. That is especially important for the assessment of the market impact of the recent European Union regulation on short selling that has been imposed upon all EU member-States alike.

Financial regulation policy must balance the benefits and costs for retail investors of imposing short-selling restrictions on stock market trading.

First-time empirical evidence is provided on the impact of short selling regulations on market volatility and liquidity of ATHEX highlighting the potential effectiveness of regulation policy.

Although short selling has been legalized in China for nearly 10 years, due to the existence of short-sale constraints, its impact on corporate governance of listed companies remains unclear. This paper aims to examine the impact of short-sale refinancing on earnings quality after the short-selling constraints have been released. The authors further explore whether this impact is subject to the nature of property rights and shareholding structures.

This study is based on a sample of A-share firms in China for the period 2014–2016. The authors use earnings response coefficients (ERC) as a proxy for earnings quality. To empirically examine this issue, a matching sample is generated by using propensity score matching method (PSM) to reduce sample selection bias.

This study provides evidence that deregulation of short selling has positive external effect on corporate governance. The results indicate that the potential short-selling opportunities can effectively suppress earnings manipulation and improve earnings quality. However, the impact of short selling on earnings quality varies for companies with different nature of property rights and shareholding structure.

To the best of the authors’ knowledge, this is the first study to investigate the relationship between short selling and earnings quality in the unique setting of short-sale refinancing. This study provides new evidence on the impact of short selling at the micro level and calls for further deregulation of short selling. In addition, this study contributes to existing studies on short-sale refinancing by examining an emerging market.