Abstract We examine short selling of equity exchange traded funds (ETFs) using the 2008 short-sale ban. Contrasting previously documented contractions in bearish strategies during ban, we find a significant increase sales largest, most liquid ETF, S&P 500 Spider. offer evidence suggesting that this upsurge was driven primarily by investors circumventing show ban’s detrimental effect on stoc...

To investigate the effect of short-selling constraints on investor behavior, we formulate an optimal stopping model in which decision to cover a short position is affected by two sale-specific frictions — margin risk and recall risk. Margin introduced assuming that seller forced close out their involuntarily if they cannot fund calls (since sales are collateralized transactions). Recall permitt...

For utility maximization problems under proportional transaction costs, it has been observed that the original market with transaction costs can sometimes be replaced by a frictionless shadow market that yields the same optimal strategy and utility. However, the question of whether or not this indeed holds in generality has remained elusive so far. In this paper we present a counterexample whic...