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Short sale constraints: the impact on the return distribution

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Listed:
  • Manoj Dalvi
  • Christos Giannikos
  • Eleni Gousgounis

Abstract

This paper tests empirically Hong and Stein's theoretical finding, that in an environment of short sale constraints, investor disagreement over future equity prices leads to negatively skewed return distributions. This study uses data from the Indian equity market to examine the third and fourth moments of the return distribution. The skewness of the return distribution is estimated both from realized returns and option prices. Empirical results provide partial supportive evidence for Hong and Stein's hypothesis.

Suggested Citation

  • Manoj Dalvi & Christos Giannikos & Eleni Gousgounis, 2012. "Short sale constraints: the impact on the return distribution," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 5(1), pages 94-107, November.
    • Handle: RePEc:taf:macfem:v:5:y:2012:i:1:p:94-107
    DOI: 10.1080/17520843.2011.641986
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    References listed on IDEAS

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    5. Gurdip Bakshi & Nikunj Kapadia & Dilip Madan, 2003. "Stock Return Characteristics, Skew Laws, and the Differential Pricing of Individual Equity Options," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 101-143.
    6. C. James Hueng, 2006. "Short-sales constraints and stock return asymmetry: evidence from the Chinese stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 16(10), pages 707-716.
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