Effect of Short Selling on Market Liquidity, Price, and Volatility: A Dynamic Perspective

Soonho Kim ()
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Soonho Kim: Pukyong National University Business School

Economics Bulletin, 2020, vol. 40, issue 4, 3140-3146

Abstract: In order to verify the effect of short selling activities on market efficiency, volatility, and price, I conduct the Granger causality test, impulse response analysis, and variance decomposition using a vector autoregressive model. Empirical tests show that short selling enhances market efficiency by reducing trading costs. On the other hand, short selling does not significantly increase stock volatility or decrease prices. This study verifies that short selling improves market quality without a negative effect on volatility and price.

Keywords: short selling; market efficiency; volatility; stock price (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2020-11-30
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