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Trading activities of short-sellers around index deletions: Evidence from the Nikkei 225

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  • Takahashi, Hidetomo
  • Xu, Peng

Abstract

Focusing on index deletions, which are events strongly associated with temporal liquidity shocks, we analyze the trading activities of short sellers around these events. Using daily short selling data from Japan, we find that short sellers show trading patterns consistent with the predatory trading in Brunnermeier and Pedersen (2005). Short sellers appear to earn profits by selling short immediately after the announcement and buying back close to the effective day. We also find that intense short selling around the announcement date results in larger subsequent return reversals. The results suggest that short selling disturbs price efficiency around the index deletions.

Suggested Citation

  • Takahashi, Hidetomo & Xu, Peng, 2016. "Trading activities of short-sellers around index deletions: Evidence from the Nikkei 225," Journal of Financial Markets, Elsevier, vol. 27(C), pages 132-146.
    • Handle: RePEc:eee:finmar:v:27:y:2016:i:c:p:132-146
    DOI: 10.1016/j.finmar.2015.05.001
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    References listed on IDEAS

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    Cited by:

    1. Akhigbe, Aigbe & Martin, Anna D. & Newman, Melinda & de Souza, Andre, 2022. "Russell index reconstitutions and short interest," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 577-588.
    2. Naoya Shiomi & Hidetomo Takahashi & Peng Xu, 2021. "Strategic short selling around index additions: Evidence from the Nikkei 225," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 1068-1077, September.
    3. Rui Li & Nan Li & Jiahui Li & Chongfeng Wu, 2018. "Short selling, margin buying and stock return in China market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(2), pages 477-501, June.

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    More about this item

    Keywords

    Short selling; Predatory trading; Price reversal;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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