We quantify the effects of financial regulation in an equilibrium model with delegated portfolio management. Fund managers trade stocks and bonds in an orderdriven market, subject to transaction taxes and constraints on short-selling and leverage. Results are obtained on the equilibrium properties of portfolio choice, trading activity, market quality and price dynamics under the different regul...

We obtain closed–form expressions for the prices and optimal hedging strategies of American put–options in the presence of an “up–and–out” barrier, both with and without constraints on the short–selling of stock. The constrained case leads to a stochastic optimization problem of mixed optimal stopping/singular control type. This is reduced to a variational inequality which is then solved explic...

Does short selling help or hinder disciplining managerial behavior? We examine managerial investment decision in a model with informed short-selling and short-term managerial incentives and show that short selling can cause firms to overinvest. The overinvestment problem is more severe for managers with stronger short-term incentives and for firms that lack quality investment opportunities. Emp...

In this paper we explore the influence of the possibility to short stocks and/or borrow money in laboratory markets. A key innovation of our study is that subjects can simultaneously trade two risky assets on two double-auction markets, allowing us to differentiate between assets with relatively high versus low capitalization. Divergence of opinions is created by providing each trader with nois...

This study examines whether U.S. international equity mutual funds provide out-of-sample diversification benefits in the presence of no short selling constraints. Ignoring economic state, do not benefits. However certain states. The are concentrated when lag one-month Treasury Bill return is lower than normal.

We document significant increases in short positions on days when company insiders sell their firms’ shares. Short selling increases before insider sales are publicly reported and often before insiders finish selling. Furthermore, the magnitude of short selling activity is consistent with short sellers’ knowledge of the insider’s rank (e.g., CEO, CFO, or a lower-ranked manager) and with knowled...