Why Do Short Selling Bans Increase Adverse Selection and Decrease Price Efficiency?

2020 ◽  
Author(s):  
Peter N Dixon
Keyword(s):  
Empirical Evidence ◽  
Adverse Selection ◽  
Information Acquisition ◽  
Market Price ◽  
Negative Information ◽  
Short Selling ◽  
Price Efficiency ◽  
Theoretical Predictions

Abstract When short selling is costly, owners of an asset have greater incentive to become informed than nonowners because trading on negative information is easier for them. Thus, information acquisition concentrates among investors owning the asset. A short selling ban restricts selling to only the relatively more informed investors who own the asset, increasing adverse selection but only on the sell side of the market. Price efficiency declines due to less overall information acquisition because a ban magnifies the disincentive to gather information for investors not owning the asset. Empirical evidence from the 2008 U.S. short selling ban is consistent with these theoretical predictions. (JEL G10, G14, G18)

Short selling regulation, return volatility and market volatility in the Athens Exchange

2017 ◽  
Vol 34 (1) ◽  
pp. 82-104 ◽  
Author(s):  
Charilaos Mertzanis
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Empirical Evidence ◽  
Market Price ◽  
Short Selling ◽  
Market Volatility ◽  
Short Sales ◽  
Content Type ◽  
Regulation Policy ◽  
The Impact

Purpose The relationship between short selling, market volatility and liquidity remains an object of intensive research. However, empirical evidence is yet to provide a conclusive elucidation of this relationship by examining aspects of market fragmentation in the form of different market settings, different timing and different stocks under coverage, among others. This paper aims to contribute to the debate by investigating the impact of short selling on market volatility and liquidity in the Athens Exchange (ATHEX) under three different periods of short sales restrictions. Design/methodology/approach Two hypotheses are tested using econometric methodologies (co-integration and Granger-causality tools). Findings The empirical results indicate that when short selling is allowed, aggregate stock returns are in the short-term more volatile, but the liquidity of the market is not significantly affected. This might be the result of significant imbalances between supply and demand of stock caused by short-selling restrictions, leading to market price fluctuations. Research limitations/implications The analysis of empirical evidence needs further expansion and association with institutional firm-level and country-level elements to provide a more comprehensive understanding of the impact of short selling on market volatility and liquidity. Practical implications Stock market regulation involving short-selling restrictions have different implications according to extent and degree of stringency of the restrictions as well as the market on which they are imposed. That is especially important for the assessment of the market impact of the recent European Union regulation on short selling that has been imposed upon all EU member-States alike. Social implications Financial regulation policy must balance the benefits and costs for retail investors of imposing short-selling restrictions on stock market trading. Originality/value First-time empirical evidence is provided on the impact of short selling regulations on market volatility and liquidity of ATHEX highlighting the potential effectiveness of regulation policy.

scholarly journals Short-selling, margin-trading, and price efficiency: Evidence from the Chinese market

2014 ◽  
Vol 48 ◽  
pp. 411-424 ◽  
Author(s):  
Eric C. Chang ◽  
Yan Luo ◽  
Jinjuan Ren
Keyword(s):  
Short Selling ◽  
Chinese Market ◽  
Price Efficiency

scholarly journals Diversity–disturbance relationships: frequency and intensity interact

2012 ◽  
Vol 8 (5) ◽  
pp. 768-771 ◽  
Author(s):  
Alex R. Hall ◽  
Adam D. Miller ◽  
Helen C. Leggett ◽  
Stephen H. Roxburgh ◽  
Angus Buckling ◽  
...  
Keyword(s):  
Species Diversity ◽  
Empirical Evidence ◽  
Empirical Studies ◽  
Ecological Theory ◽  
Intermediate Disturbance Hypothesis ◽  
Intermediate Disturbance ◽  
Disturbance Frequency ◽  
Theoretical Predictions ◽  
Experimental Populations ◽  
Disturbance Hypothesis

An influential ecological theory, the intermediate disturbance hypothesis (IDH), predicts that intermediate levels of disturbance will maximize species diversity. Empirical studies, however, have described a wide variety of diversity–disturbance relationships (DDRs). Using experimental populations of microbes, we show that the form of the DDR depends on an interaction between disturbance frequency and intensity. We find that diversity shows a monotonically increasing, unimodal or flat relationship with disturbance, depending on the values of the disturbance aspects considered. These results confirm recent theoretical predictions, and potentially reconcile the conflicting body of empirical evidence on DDRs.

scholarly journals Hurdle Rate and Adverse Selection on Escalation of Commitment

2019 ◽  
Vol 3 (2) ◽  
Author(s):  
M. Arsyadi Ridha
Keyword(s):  
Empirical Evidence ◽  
Adverse Selection ◽  
Escalation Of Commitment ◽  
Hurdle Rate ◽  
Hurdle Rates

This article tests the effect of hurdle rates and adverse selection on escalation of commitment. Participants consist of 135 junior managers who had passed two course of management. The result indicates that the managers with adverse selection conditions will tend not to continue unfavorable projects. This research also affirms that the managers with adverse selection conditions will be more likely not to continue projects that are not favorable under the conditions of self-set hurdle rates compared to the conditions of organization-set hurdle rates. This article may contribute to empirical evidence of a decline in comprehensive escalation of commitments. Keywords: adverse selection, self-set hurdle rates, organization-set hurdle rates, escalation  of commitment

Empirical Evidence on Adverse Selection

Loss Coverage ◽  
2017 ◽  
pp. 118-132
Author(s):  
Guy Thomas
Keyword(s):  
Empirical Evidence ◽  
Adverse Selection

scholarly journals When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information

2019 ◽  
Vol 56 (5) ◽  
pp. 749-766 ◽  
Author(s):  
Minkyung Kim ◽  
K. Sudhir ◽  
Kosuke Uetake ◽  
Rodrigo Canales
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Customer Relationship Management ◽  
Private Information ◽  
Information Acquisition ◽  
Relationship Management ◽  
Selection Effect ◽  
Sales Performance ◽  
Customer Relationships ◽  
Customer Relationship

At many firms, incentivized salespeople with private information about customers are responsible for customer relationship management. Although incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. The authors investigate the sales performance–moral hazard trade-off in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, the authors detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard, leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative effects of acquiring low-quality customers on future payoffs. Critically, without the moderating effect of maintenance incentives, the adverse selection effect of acquisition incentives overwhelms the sales-enhancing effects, clarifying the importance of multidimensional incentives for customer relationship management. Reducing private information (through job transfers) hurts customer maintenance but has greater impact on productivity by moderating adverse selection at acquisition. This article also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identification strategy that exploits the time-varying effects of salesperson incentives.

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