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Does short selling affect the clustering of stock prices?

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  • Baig, Ahmed S.
  • Sabah, Nasim

Abstract

We examine the role of short selling activity on the level of price clustering in equity markets. Consistent with the negotiation hypothesis of Harris (1991), we find that at monthly level, higher shorting activity significantly decreases the clustering of daily closing prices on round increments of $0.05. Moreover, at intraday level, transaction prices tend to cluster less on round increments of $0.05 when short sellers are more active. Our findings suggest that both intraday and closing stock prices tend to be more uniformly distributed and hence informationally efficient in the presence of short sellers.

Suggested Citation

  • Baig, Ahmed S. & Sabah, Nasim, 2020. "Does short selling affect the clustering of stock prices?," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 270-277.
    • Handle: RePEc:eee:quaeco:v:76:y:2020:i:c:p:270-277
    DOI: 10.1016/j.qref.2019.08.008
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    Cited by:

    1. Dasilas, Apostolos, 2022. "The impact of margin trading and short selling on the investment-to-price sensitivity. Evidence from China," International Review of Financial Analysis, Elsevier, vol. 84(C).
    2. Donglian Ma & Hisashi Tanizaki, 2022. "Intraday patterns of price clustering in Bitcoin," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-25, December.
    3. Baig, Ahmed S. & Butt, Hassan Anjum & Haroon, Omair & Rizvi, Syed Aun R., 2021. "Deaths, panic, lockdowns and US equity markets: The case of COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 38(C).

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    More about this item

    Keywords

    Short selling; Price clustering; Round prices; Intra-day clustering;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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

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