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Strategic short selling around index additions: Evidence from the Nikkei 225

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  • Naoya Shiomi
  • Hidetomo Takahashi
  • Peng Xu

Abstract

Focusing on index additions, which provoke buying pressure by large investors, we analyze the trading activities of short sellers around these events. Using daily short‐selling data from Japan, we find that short sellers exploit profitable opportunities through their liquidity provision activities. Short sellers earn profits by selling short right before the effective date of index additions and buying back after the effective date. The results suggest that short sellers exploit profitable opportunities due to anticipated buying pressure.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:irvfin:v:21:y:2021:i:3:p:1068-1077
    DOI: 10.1111/irfi.12303
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    References listed on IDEAS

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    1. Ding, Hui & Liu, Chenguang & Ni, Xiaoran, 2023. "Creditor protection and labor investment efficiency: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).

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