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The impact of naked short selling on the securities lending and equity market

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  • Lecce, Steven
  • Lepone, Andrew
  • McKenzie, Michael D.
  • Segara, Reuben
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    Abstract

    This paper examines the impact of naked short selling on equity markets where it is restricted to securities on an approved list. Consistent with Miller's (1977) intuition, stocks with the highest dispersion of opinions and short sale constraints are the only stocks to exhibit significant and negative abnormal returns in the post-event period. We also find slightly higher stock return volatility and a small reduction in liquidity when naked short sales are allowed. Overall, it impairs market quality (liquidity and volatility), although there appears to be some improvement in price efficiency in stocks with high short sale constraints.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 15 (2012)
    Issue (Month): 1 ()
    Pages: 81-107

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    Handle: RePEc:eee:finmar:v:15:y:2012:i:1:p:81-107

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    Web page: http://www.elsevier.com/locate/finmar

    Related research

    Keywords: Short sale constraints; Liquidity; Naked short selling; Australian Securities Exchange; Regression discontinuity design;

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    References

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    Cited by:
    1. Stratmann, Thomas & Welborn, John W., 2013. "The options market maker exception to SEC Regulation SHO," Journal of Financial Markets, Elsevier, vol. 16(2), pages 195-226.

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