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Does short sale restriction lower price efficiency when substitutes exist? Evidence from the Korean market

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  • Lee, Soonhee

Abstract

Using KOSPI200 index options, futures, and warrants, this study examines the effect of short sale restriction on price efficiency by circumventing the concerns regarding firm characteristics, market conditions, and limited information acquisition of investors in previous empirical studies. This study finds that warrants are as price efficient as other derivatives products after market conditions are considered, even though warrant investors cannot short sell. This finding provides an example that short sale restriction on some assets may not hinder market efficiency if there are close substitutes for those assets in the market.

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  • Lee, Soonhee, 2017. "Does short sale restriction lower price efficiency when substitutes exist? Evidence from the Korean market," Economics Letters, Elsevier, vol. 158(C), pages 77-79.
    • Handle: RePEc:eee:ecolet:v:158:y:2017:i:c:p:77-79
    DOI: 10.1016/j.econlet.2017.06.037
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    References listed on IDEAS

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    Cited by:

    1. Abhinava Tripathi, 2021. "The Arrival of Information and Price Adjustment Across Extreme Quantiles: Global Evidence," IIM Kozhikode Society & Management Review, , vol. 10(1), pages 7-19, January.

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    More about this item

    Keywords

    Short sale restriction; Price efficiency; Derivatives products; VECM;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G1 - Financial Economics - - General Financial Markets

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