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The value of shorting

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  • Nilsson, Roland

Abstract

This paper assesses the effects of short-sale constraints on asset prices. The analysis focuses on a particular period in Sweden during which shorting stocks was impossible but stock options were traded. Firstly, the effect on both stock options and the underlying stock was investigated jointly by considering deviations from put-call-parity. Secondly, the effects on only the derivatives were investigated by considering their implied volatilites. The main findings are: (i) the impact on pricing are consistent with a short-sale constraint, (ii) these effects are much more pronounced when shorting is not possible, (iii) these effects are not solely attributable to the mispricing of the stock, as previous research indicates, and (iv) access to international shorting markets can alleviate local short-sale constraints.

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  • Nilsson, Roland, 2008. "The value of shorting," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 880-891, May.
    • Handle: RePEc:eee:jbfina:v:32:y:2008:i:5:p:880-891
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    Cited by:

    1. Takahashi, Hidetomo, 2010. "Short-sale inflow and stock returns: Evidence from Japan," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2403-2412, October.
    2. Phillips, Blake, 2011. "Options, short-sale constraints and market efficiency: A new perspective," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 430-442, February.
    3. Chen, Crystal Xiaobei & Rhee, S. Ghon, 2010. "Short sales and speed of price adjustment: Evidence from the Hong Kong stock market," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 471-483, February.
    4. Ryan L. Davis & Stephen N. Jurich & Brian S. Roseman & Ethan D. Watson, 2018. "Short-Sale Restrictions and Price Clustering: Evidence from SEC Rule 201," Journal of Financial Services Research, Springer;Western Finance Association, vol. 54(3), pages 345-367, December.
    5. Van Le, 2016. "The effect of short-sale restrictions: another perspective," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 700-714, October.
    6. Blau, Benjamin M. & Van Ness, Robert A. & Warr, Richard S., 2012. "Short selling of ADRs and foreign market short-sale constraints," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 886-897.
    7. Agyei-Ampomah, Sam & Mazouz, Khelifa, 2011. "The comovement of option listed stocks," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2056-2069, August.
    8. Le, Van & Zurbruegg, Ralf, 2016. "The impact of short sale restrictions on informed trading in the stock and options markets," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 262-273.
    9. Jain, Archana & Jain, Pankaj K. & McInish, Thomas H. & McKenzie, Michael, 2013. "Worldwide reach of short selling regulations," Journal of Financial Economics, Elsevier, vol. 109(1), pages 177-197.
    10. Hayunga, Darren K. & Holowczak, Richard D. & Lung, Peter P. & Nishikawa, Takeshi, 2012. "Derivatives traders’ reaction to mispricing in the underlying equity," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2438-2454.

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