Does short selling affect the clustering of stock prices?

Ahmed S. Baig and Nasim Sabah

The Quarterly Review of Economics and Finance, 2020, vol. 76, issue C, 270-277

Abstract: We examine the role of short selling activity on the level of price clustering in equity markets. Consistent with the negotiation hypothesis of Harris (1991), we find that at monthly level, higher shorting activity significantly decreases the clustering of daily closing prices on round increments of $0.05. Moreover, at intraday level, transaction prices tend to cluster less on round increments of $0.05 when short sellers are more active. Our findings suggest that both intraday and closing stock prices tend to be more uniformly distributed and hence informationally efficient in the presence of short sellers.

Keywords: Short selling; Price clustering; Round prices; Intra-day clustering (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:76:y:2020:i:c:p:270-277

DOI: 10.1016/j.qref.2019.08.008

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