Short of Capital: Stock Market Implications of Short Sellers’ Losses

Antonio Gargano, Juan Sotes-Paladino and Patrick Verwijmeren
Additional contact information
Antonio Gargano: University of Houston
Juan Sotes-Paladino: Universidad de los Andes
Patrick Verwijmeren: Erasmus School of Economics/University of Melbourne

No 116, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: We provide evidence that losses constrain short sellers but not the transmission of information to prices. Using unique data on U.S. equity lending, we document a negative impact of the mark-tomarket losses of a stock’s short sellers, but no impact of their gains, on the future shorting of the stock. Consistent with funding and institutional constraints limiting short selling, we further show that the effect is highly asymmetric across different loss levels and stronger among stocks facing higher margin requirements. However, loss-making short selling has no predictive power for returns, suggesting a low impact of these constraints on the transmission of short sellers information to prices.

Keywords: Short Selling; Margin Constraints; Limits to Arbitrage; Informed Trading (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022-02
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:116

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