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Confirmation of T+35 Failures-To-Deliver Cycles: Evidence from GameStop Corp

Author

Listed:
  • Daniel Pastorek

    (Department of Finance, Faculty of Business and Economics, Mendel University in Brno, Zemedelska 1, 613 00 Brno, Czech Republic)

  • Michal Drabek

    (Department of Finance, Faculty of Business and Economics, Mendel University in Brno, Zemedelska 1, 613 00 Brno, Czech Republic)

  • Peter Albrecht

    (Department of Finance, Faculty of Business and Economics, Mendel University in Brno, Zemedelska 1, 613 00 Brno, Czech Republic)

Abstract

In this paper, we examine the potential of cycles in the valuation of GameStop Corp. (GME) stocks, due to the unique exemptions in exchange traded fund (ETF) creation/redemption activities. In order to satisfy liquidity in the market, a market maker and/or authorised participant is allowed to sell ETF shares that have not yet been created. With the use of wavelet coherence, we find evidence that ETF Failures to Deliver (FTDs) formed consistent cycles in the T+35 FTD clearing period. Results also confirm less consistent but repeating cycles between the T+3 and T+6 periods. To the best of our knowledge, we are the first in the literature to empirically examine the potential of these cycles and their co-movement between FTD and stock prices.

Suggested Citation

  • Daniel Pastorek & Michal Drabek & Peter Albrecht, 2022. "Confirmation of T+35 Failures-To-Deliver Cycles: Evidence from GameStop Corp," MENDELU Working Papers in Business and Economics 2022-81, Mendel University in Brno, Faculty of Business and Economics.
    • Handle: RePEc:men:wpaper:81_2022
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    References listed on IDEAS

    as
    1. Talis Putnins, 2010. "Naked short sales and fails-to-deliver: An overview of clearing and settlement procedures for stock trades in the USA," Published Paper Series 2010-2, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    2. Umar, Zaghum & Yousaf, Imran & Zaremba, Adam, 2021. "Comovements between heavily shorted stocks during a market squeeze: Lessons from the GameStop trading frenzy," Research in International Business and Finance, Elsevier, vol. 58(C).
    3. Stratmann, Thomas & Welborn, John W., 2016. "Informed short selling, fails-to-deliver, and abnormal returns," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 81-102.
    4. Umar, Zaghum & Gubareva, Mariya & Yousaf, Imran & Ali, Shoaib, 2021. "A tale of company fundamentals vs sentiment driven pricing: The case of GameStop," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    5. Anand, Abhinav & Pathak, Jalaj, 2022. "The role of Reddit in the GameStop short squeeze," Economics Letters, Elsevier, vol. 211(C).
    6. Boni, Leslie, 2006. "Strategic delivery failures in U.S. equity markets," Journal of Financial Markets, Elsevier, vol. 9(1), pages 1-26, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fails to deliver; GameStop; Exchange-traded funds; Wavelet coherence;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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