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The effect of short selling on volatility and jumps

Author

Listed:
  • Glenn Kit Foong Ho

    (UWA Business School, The University of Western Australia, Australia)

  • Sirimon Treepongkaruna

    (The University of Western Australia, Perth, WA, Australia; Center of Excellence in Management Research for Corporate Governance and Behavioral Finance, Sasin School of Management, Chulalongkorn University, Thailand)

  • Marvin Wee

    (Research School of Accounting, College of Business and Economics, The Australian National University, Canberra, Australia)

  • Chaiyuth Padungsaksawasdi

    (Department of Finance, Thammasat Business School, Thammasat University, Bangkok, Thailand)

Abstract

The evidence is mixed regarding the role of short sellers on stock market efficiency, with the majority of studies assessing short selling activities during abnormal market conditions. This study investigates the effect of short selling on stock volatility during normal market conditions in the Australian stock market using various proxies for volatility and trading activities. While short volume does not supplant the number of trades in the volume and volatility relationship, our results suggest that short selling has some incremental positive effects on volatility. Overall, our vector autoregression (VAR) analysis suggests that trading by short sellers increases volatility even during normal market conditions. JEL Classification: G10, G12, G13

Suggested Citation

  • Glenn Kit Foong Ho & Sirimon Treepongkaruna & Marvin Wee & Chaiyuth Padungsaksawasdi, 2022. "The effect of short selling on volatility and jumps," Australian Journal of Management, Australian School of Business, vol. 47(1), pages 34-52, February.
    • Handle: RePEc:sae:ausman:v:47:y:2022:i:1:p:34-52
    DOI: 10.1177/0312896221996416
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    References listed on IDEAS

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    Cited by:

    1. Kwaku Boafo Baidoo, 2022. "Time-Varying Effect of Short Selling on Market Volatility During Crisis: Evidence from COVID-19 and War in Ukraine," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 8(2), pages 233-243.

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    More about this item

    Keywords

    Jumps; order imbalance; realized volatility; short selling; trading volume;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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