A synthesized model of short selling constraints and their impact on stock returns

Jose Gutierrez (), Steve Johnson () and Robert Stretcher ()
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Jose Gutierrez: Sam Houston State University
Steve Johnson: Sam Houston State University
Robert Stretcher: Sam Houston State University

Journal of Economics and Finance, 2018, vol. 42, issue 1, No 9, 210 pages

Abstract: Abstract This paper presents a synthesized model explaining the returns of short-sale constrained stocks. We combine short-sale constraints that were previously treated individually or in pairs into a more fully specified model. The model is also specified in generally falling versus generally rising markets, and in consideration of relative effects for large/mid-cap versus small/micro-cap firms. There is evidence that a more fully specified model provides additional insight with less factor omission bias than prior models. Beyond that, our results indicate asymmetric pricing differences between least versus most short-sale constrained stocks, sensitive to overall market direction.

Keywords: Short-sell constraints; Asymmetry; Relative short interest; Institutional ownership; Options; Dividends (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G17 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s12197-017-9393-y

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