Short sale constraints: the impact on the return distribution

Manoj Dalvi, Christos Giannikos and Eleni Gousgounis

Macroeconomics and Finance in Emerging Market Economies, 2012, vol. 5, issue 1, 94-107

Abstract: This paper tests empirically Hong and Stein's theoretical finding, that in an environment of short sale constraints, investor disagreement over future equity prices leads to negatively skewed return distributions. This study uses data from the Indian equity market to examine the third and fourth moments of the return distribution. The skewness of the return distribution is estimated both from realized returns and option prices. Empirical results provide partial supportive evidence for Hong and Stein's hypothesis.

Date: 2012
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DOI: 10.1080/17520843.2011.641986

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