Flying under the radar: The effects of short-sale disclosure rules on investor behavior and stock prices

Stephan Jank, Christoph Roling and Esad Smajlbegovic

No 25/2016, Discussion Papers from Deutsche Bundesbank

Abstract: This paper analyzes how newly introduced transparency requirements for short positions affect investors' behavior and security prices. Employing a unique data set, which contains both public positions above and confidential positions below the regulatory disclosure threshold, we offer several novel insights. Positions accumulate just below the threshold, indicating that a sizable fraction of short sellers are reluctant to disclose their positions publicly. Furthermore, we provide evidence that the transparency measures effectively represent a short-sale constraint for secretive investors, which results in stocks to be overpriced. Specifically, when this constraint is potentially binding, stocks subsequently exhibit a negative abnormal return of 1.0-1.4% on a monthly basis. Different placebo tests verify that the short-sale constraint originates from the disclosure threshold. Overall, these findings suggest that short sellers' evasive behavior in response to the transparency regulation imposes a negative externality on stock market efficiency.

Keywords: short selling; transparency; investor behavior; stock market efficiency (search for similar items in EconPapers)
JEL-codes: G14 G15 G23 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Flying under the radar: The effects of short-sale disclosure rules on investor behavior and stock prices (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:252016

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