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The effect of short selling on volatility and jumps

Glenn Kit Foong Ho, Sirimon Treepongkaruna, Marvin Wee and Chaiyuth Padungsaksawasdi
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Glenn Kit Foong Ho: UWA Business School, The University of Western Australia, Australia
Sirimon Treepongkaruna: The University of Western Australia, Perth, WA, Australia; Center of Excellence in Management Research for Corporate Governance and Behavioral Finance, Sasin School of Management, Chulalongkorn University, Thailand
Marvin Wee: Research School of Accounting, College of Business and Economics, The Australian National University, Canberra, Australia
Chaiyuth Padungsaksawasdi: Department of Finance, Thammasat Business School, Thammasat University, Bangkok, Thailand

Australian Journal of Management, 2022, vol. 47, issue 1, 34-52

Abstract: The evidence is mixed regarding the role of short sellers on stock market efficiency, with the majority of studies assessing short selling activities during abnormal market conditions. This study investigates the effect of short selling on stock volatility during normal market conditions in the Australian stock market using various proxies for volatility and trading activities. While short volume does not supplant the number of trades in the volume and volatility relationship, our results suggest that short selling has some incremental positive effects on volatility. Overall, our vector autoregression (VAR) analysis suggests that trading by short sellers increases volatility even during normal market conditions. JEL Classification: G10, G12, G13

Keywords: Jumps; order imbalance; realized volatility; short selling; trading volume (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1177/0312896221996416

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