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Price efficiency and short selling

Author

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  • Saffi, Pedro

    (IESE Business School)

  • Sigurdson, Kari

    (Barclays Global Investors and Reykjavik University)

Abstract

This paper investigates the effect of short-sale constraints on price efficiency. We use a unique global dataset on equity lending, collected from several custodians, from January 2004 to June 2006. This information is available weekly for 17,015 stocks from 26 countries. Our main findings are as follows. First, stocks with limited lending supply and high borrowing fees respond more slowly to market shocks. Second, short-sale constraints have a small impact on the distribution of weekly stock returns. Limited lending supply is associated with higher skewness, but not with fewer extreme negative returns. Third, stocks with limited lending supply and higher borrowing fees are associated with lower R2s on average.

Suggested Citation

  • Saffi, Pedro & Sigurdson, Kari, 2008. "Price efficiency and short selling," IESE Research Papers D/748, IESE Business School.
    • Handle: RePEc:ebg:iesewp:d-0748
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    File URL: http://www.iese.edu/research/pdfs/DI-0748-E.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Short-sales constraints; market efficiency; equity lending;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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