Skewness, short interest and the efficiency of stock prices

Benjamin Blau () and Ryan J Whitby

Applied Economics, 2018, vol. 50, issue 20, 2229-2242

Abstract: We examine the association between return skewness, short interest and the efficiency of stock prices. Since preferences for skewness have been shown to impact asset prices, we examine how skewness relates to market efficiency. We find that stocks with positive skewness are less efficient, which might be explained by investor preferences for positive skewness. Next, we document that short interest reduces both total skewness and idiosyncratic skewness. Finally, while research has shown that short selling can improve the efficiency of markets generally, we show that short interest’s ability to improve market efficiency is strongest in stocks with the highest skewness.

Date: 2018
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/00036846.2017.1394971

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