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The effect of short selling and borrowing on market prices and traders’ behavior

Sébastien Duchêne, Eric Guerci, Nobuyuki Hanaki () and Charles Noussair

CEE-M Working Papers from CEE-M, Universitiy of Montpellier, CNRS, INRA, Montpellier SupAgro

Abstract: This paper studies the influence of allowing borrowing and short selling on market prices and traders’ forecasts in an experimental asset market. We verify, although not statistically significantly so, that borrowing tends to increase asset overvaluation and price orecasts, while short selling tends to reduce these measures. We also show that a number of results on beliefs, traders’ types, cognitive sophistication, and earnings obtained in earlier experimental studies in which borrowing and short selling are not possible, generalize to markets with borrowing and short sales.

Keywords: experimental asset market; bubble; short sales; margin buying (search for similar items in EconPapers)
JEL-codes: C9 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-fmk
Date: 2018-09
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Persistent link: https://EconPapers.repec.org/RePEc:lam:wpceem:18-18

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