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Shorting

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  • Shuai Chen

    (Tsinghua University)

Abstract

Short selling is a trading strategy that enables investors to profit from anticipated declines in asset prices by borrowing and selling securities with the intention of repurchasing them at lower levels. This chapter examines the multiple roles of shorting—including hedging, price discovery, liquidity provision, speculation, and market oversight—while introducing key instruments such as stock borrowing, put options, inverse ETFs, and futures contracts. Through landmark cases like the subprime mortgage crisis and Enron collapse, it illustrates how short selling can expose overvaluation and corporate misconduct. However, the strategy carries unlimited loss potential, may amplify market instability, and faces ethical and regulatory scrutiny. Ultimately, short selling serves as a vital mechanism for market efficiency and critical feedback, yet it demands rigorous risk management and contextual awareness to be employed effectively.

Suggested Citation

  • Shuai Chen, 2025. "Shorting," Management for Professionals,, Springer.
    • Handle: RePEc:spr:mgmchp:978-981-95-3064-9_18
    DOI: 10.1007/978-981-95-3064-9_18
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