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The Uptick Rule and Short-Selling Strategies

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  • Kevin (Min) Zhao

Abstract

The Security and Exchange Commission revoked the uptick rule in July 2007. The revocation of the uptick rule provides us with a unique setting to investigate the impact of short-sale constraints on various short-selling strategies in a controlled environment. Comparing short-selling behaviors for uptick-rule restricted and unrestricted stocks during the pre- and post-revocation periods, we find that contrarian short selling and voluntary-liquidity short selling are more profound in uptick-rule-restricted stocks than in unrestricted stock and that market trend chasing short selling is less profound in uptick-rule-restricted stocks than in unrestricted stocks. Our results also show that the uptick rule has no impact on risk-bearing short-selling strategies.

Suggested Citation

  • Kevin (Min) Zhao, 2012. "The Uptick Rule and Short-Selling Strategies," Working Papers 201202, Middle Tennessee State University, Department of Economics and Finance.
  • Handle: RePEc:mts:wpaper:201202
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    File URL: http://capone.mtsu.edu/berc/working/Uptick%20Rule%20and%20Short%20Selling%20Strategies%20Zhao.pdf
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    Keywords

    uptick rule; short sale constraints; short selling strategy;

    JEL classification:

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

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