Short selling of ADRs and foreign market short-sale constraints

Benjamin Blau (), Robert A. Van Ness and Richard S. Warr

Journal of Banking & Finance, 2012, vol. 36, issue 3, 886-897

Abstract: We examine the effect of home market short-sale constraints on securities that also trade in other countries that have more liberal short-sale rules. In particular, we focus on the case of ADRs traded in the US, as in some cases, the home markets of these ADRs prohibit short selling. We find that short sellers more heavily trade ADRs from countries where short selling is prohibited than from markets where short selling is allowed. Furthermore, we find that the greater levels of short selling in ADRs with binding home-market constraints is driven by stocks with greater dispersion of investors’ opinion, low fundamentals-to-price ratios, and recent price increases. Our results support the hypothesis that short sellers target ADRs with home market short-sale constraints because these ADRs are more often subject to temporary misvaluation.

Keywords: Short selling; Short-sale constraints; American Depository Receipts (ADRs) (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:3:p:886-897

DOI: 10.1016/j.jbankfin.2011.10.004

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