Regulatory Politics And Short Selling

Politics and the Regulatory Agencies

Short-Selling Attacks and Creditor Runs

This paper investigates the mechanism through which short selling of a bank’s stocks can trigger the failure of the bank. In the model, creditors, who learn information from stock prices, will grow increasingly unsure about the bank’s true fundamentals in facing noisier stock prices; thus a run on the bank is more likely because of creditors’ concave payo¤. Understanding this, speculators condu...

Short Selling and Default Prediction: International Evidence

We examine how short selling affects the accuracy of default prediction models. Our results indicate that a dynamic multiperiod logit model accurately predicts 18 percentage points more actual occurrences of default in countries where short-selling is widely practiced. Moreover, our analyses indicate that short selling has virtually no impact on the proportion of inaccurately classified non-def...

Predatory Short-selling and Self-fullling Crises

This paper investigates the mechanism through which short-selling can cause failures of …nancial …rms and state …nancing. We show that the fundamental problem of short-selling is that it leads to an increase in uncertainty and information asymmetry on the …rm’s or the sovereign’s fundamentals. Debtholders, who care about downside risk but not upside risk, are averse to fundamental uncertainty. ...

Supplier Short Selling and Customer News

This paper examines whether short sellers exploit information in economically linked firms to undertake profitable trades. Using newly available information on firm-level customer-suppliercompetitor relationships and Reg SHO daily short sales data, we find that the short selling of supplier stock increases with negative post-news customer returns, and that the relation becomes more pronounced i...