Short-selling activities in the time of COVID-19

Ellie Luu, Fangming Xu and Liyi Zheng

The British Accounting Review, 2023, vol. 55, issue 4

Abstract: This study examines the daily short-selling activities in the U.S. market during the early 2020 outbreak of the COVID-19 global pandemic. Our findings indicate firms that are more sensitive to the shock (i.e., with high foreign exposure, low financial or operating flexibility, or high supply-chain exposure) were shorted more heavily. Moreover, short-selling activities during the COVID-19 pandemic, blamed for triggering stock market crashes, were primarily concentrated around overpriced stocks. This finding supports the argument that short selling plays a prominent role in improving price discoveries. Our research provides timely empirical evidence supporting the U.S. Securities and Exchange Commission's (SEC) non-intervention approach in banning short selling in the U.S. market.

Keywords: Short selling; COVID-19 pandemic; Mispricing; Price discovery (search for similar items in EconPapers)
JEL-codes: G10 G14 G18 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:55:y:2023:i:4:s0890838923000549

DOI: 10.1016/j.bar.2023.101216

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