Research on the Effect of Margin and Short-selling on the Volatility of Stock Price

2018 ◽  
Author(s):  
Jin FENG ◽  
Yue WANG ◽  
Yu-xin LI
Keyword(s):  
Stock Price ◽  
Short Selling

scholarly journals On the role of Föllmer-Schweizer minimal martingale measure in risk-sensitive control asset management

2015 ◽  
Vol 52 (3) ◽  
pp. 703-717
Author(s):  
Amogh Deshpande
Keyword(s):  
Asset Management ◽  
Optimal Strategy ◽  
Stock Price ◽  
Short Selling ◽  
Martingale Measure ◽  
Minimal Martingale Measure ◽  
Risk Sensitive ◽  
Risk Sensitive Control ◽  
Riskless Asset

Kuroda and Nagai (2002) stated that the factor process in risk-sensitive control asset management is stable under the Föllmer-Schweizer minimal martingale measure. Fleming and Sheu (2002) and, more recently, Föllmer and Schweizer (2010) observed that the role of the minimal martingale measure in this portfolio optimization is yet to be established. In this paper we aim to address this question by explicitly connecting the optimal wealth allocation to the minimal martingale measure. We achieve this by using a ‘trick’ of observing this problem in the context of model uncertainty via a two person zero sum stochastic differential game between the investor and an antagonistic market that provides a probability measure. We obtain some startling insights. Firstly, if short selling is not permitted and the factor process evolves under the minimal martingale measure, then the investor's optimal strategy can only be to invest in the riskless asset (i.e. the no-regret strategy). Secondly, if the factor process and the stock price process have independent noise, then, even if the market allows short-selling, the optimal strategy for the investor must be the no-regret strategy while the factor process will evolve under the minimal martingale measure.

scholarly journals Super-replication in stochastic volatility models under portfolio constraints

1999 ◽  
Vol 36 (02) ◽  
pp. 523-545 ◽  
Author(s):  
Jakša Cvitanić ◽  
Huyên Pham ◽  
Nizar Touzi
Keyword(s):  
Stochastic Volatility ◽  
Stock Price ◽  
Convex Set ◽  
Short Selling ◽  
Contingent Claims ◽  
Stochastic Volatility Models ◽  
Portfolio Constraints ◽  
Volatility Models ◽  
Closed Convex Set

We study a financial market with incompleteness arising from two sources: stochastic volatility and portfolio constraints. The latter are given in terms of bounds imposed on the borrowing and short-selling of a ‘hedger’ in this market, and can be described by a closed convex set K. We find explicit characterizations of the minimal price needed to super-replicate European-type contingent claims in this framework. The results depend on whether the volatility is bounded away from zero and/or infinity, and also, on if we have linear dynamics for the stock price process, and whether volatility process depends on the stock price. We use a previously known representation of the minimal price as a supremum of the prices in the corresponding shadow markets, and we derive a PDE characterization of that representation.

Short Selling and Price Pressures in the Korean Stock Market

2015 ◽  
Vol 23 (2) ◽  
pp. 265-287
Author(s):  
Yeongseop Rhee ◽  
Sang Buhm Hahn
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Short Selling ◽  
Market Liquidity ◽  
Dynamic Panel Model ◽  
Market Sentiment ◽  
Order Imbalance ◽  
Price Decline ◽  
Korean Stock Market

This paper examines short-selling activity focusing on its behavior during non-normal times of occasional excesses in the Korean stock market. Using the methodology explained by Brunnermeier and Pederson (2005) and Shkilko et al. (2009; 2012), we first examine whether short-selling is predatory on those event days of large price reversals. Overall there is little predatory abnormal short-selling in the pre-rebound phase and we can observe active contrarian short-selling in the post-rebound phase. When we compared aggressiveness between short-selling and non-short-selling using order imbalance variables, we found that non-short selling is much more aggressive than short selling in the Korean stock market. From the observation of market liquidity measured by quoted spreads, we could find that market liquidity is somewhat limited during price decline stages while it slightly improves during price reversal phases. Also, using dynamic panel model, we test the influences of those variables on stock price changes and disaggregate the compound effect of short-selling reflected in trading volume itself into differentiated ones not only through pure trading channel but also through other complicated channels such as market sentiment change. Main findings from the regression results are as follows : In the Korean stock market, short sellers seem to behave as a contrarian trader rather than a momentum trader; seller-initiated aggressive trading, whether it is by short-selling or non-short-selling, leads to negative order imbalance and price decline; market liquidity is limited by short-selling and further pressure on price decline is added in the pre-rebound stage; and stock prices are affected not only through pure selling (buying) channel but also through other channels in the Korean stock market.

scholarly journals Short selling and stock price crash risk

2020 ◽  
Vol 28 (2) ◽  
pp. 63-76
Author(s):  
Jay M. Chung ◽  
Shu-Feng Wang
Keyword(s):  
Stock Price ◽  
Short Selling ◽  
Crash Risk ◽  
Prediction Ability ◽  
Foreign Investors ◽  
Policy Issues ◽  
Short Sellers ◽  
Informed Traders ◽  
Shed Light

This paper aims to investigate short selling and stock price crash risk. The authors find that short selling is positively associated with one-month-ahead stock price crash risk, consistent with the literature showing that short sellers are informed traders. The authors attribute this prediction ability to the information short sellers receive from foreign investors with high levels of ownership in a firm. The results shed light on policy issues regarding short selling regulation.

scholarly journals The Effect of KRX Halts on Overheated Short-selling Stocks

2020 ◽  
Vol 49 (5) ◽  
pp. 741-776
Author(s):  
Woo Baik Lee
Keyword(s):  
Information Asymmetry ◽  
Stock Price ◽  
Short Selling ◽  
Price Rise ◽  
Additional Increase ◽  
Short Sale ◽  
Significant Difference ◽  
Sample Data ◽  
Efficient Price ◽  
Unfair Trade

Korea Exchange (KRX) has adopted several measures to ease temporary overheating of short-selling stocks in the market since March 27, 2017. These measures aim to curb excessive volatility and unfair trade, promoting efficient price discovery. This study examines the effect of overheated short-selling halts using the sample data from these KRX measures during the period of September 2017 to October 2019. The major empirical results are: first, the drop in prices of overheated short-selling stocks on a downward trend slows significantly after KRX announcement. Moreover, the stock price rise on the triggering day shows no additional increase in the period after the trigger. Second, for the stocks so triggered, the volatility in the period after the halt announcement shows no significant difference from the pre-halt period. This can be attributed to the resolution of the information asymmetry by calling investors’ attention to overheated short-selling. Third, the ratio of short-selling to trading after halt suggests no statistically significant difference from the period before the trigger. These results imply that the measures to ease overheated short sale of stocks in KRX are effective in controlling excessive temporary volatility and unfair trading.

scholarly journals Super-replication in stochastic volatility models under portfolio constraints

1999 ◽  
Vol 36 (2) ◽  
pp. 523-545 ◽  
Author(s):  
Jakša Cvitanić ◽  
Huyên Pham ◽  
Nizar Touzi
Keyword(s):  
Stochastic Volatility ◽  
Stock Price ◽  
Convex Set ◽  
Short Selling ◽  
Contingent Claims ◽  
Stochastic Volatility Models ◽  
Portfolio Constraints ◽  
Volatility Models ◽  
Closed Convex Set

We study a financial market with incompleteness arising from two sources: stochastic volatility and portfolio constraints. The latter are given in terms of bounds imposed on the borrowing and short-selling of a ‘hedger’ in this market, and can be described by a closed convex set K. We find explicit characterizations of the minimal price needed to super-replicate European-type contingent claims in this framework. The results depend on whether the volatility is bounded away from zero and/or infinity, and also, on if we have linear dynamics for the stock price process, and whether volatility process depends on the stock price. We use a previously known representation of the minimal price as a supremum of the prices in the corresponding shadow markets, and we derive a PDE characterization of that representation.

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