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Does short-selling amplify price declines or align stocks with their fundamental values?

Curtis, Asher; Fargher, Neil

Description

Critics of short selling argue that short sellers amplify price declines by targeting firms with falling prices in an unwarranted manner. Contrary to this viewpoint, we find that increases in short interest for firms following a price decline are associated with measures of overpricing based on financial statement analysis. Our results extend to short-selling activity following marketwide declines. We also find evidence consistent with the profitability of short selling following price declines...[Show more]

dc.contributor.authorCurtis, Asher
dc.contributor.authorFargher, Neil
dc.date.accessioned2015-12-10T21:54:52Z
dc.identifier.issn0025-1909
dc.identifier.urihttp://hdl.handle.net/1885/39121
dc.description.abstractCritics of short selling argue that short sellers amplify price declines by targeting firms with falling prices in an unwarranted manner. Contrary to this viewpoint, we find that increases in short interest for firms following a price decline are associated with measures of overpricing based on financial statement analysis. Our results extend to short-selling activity following marketwide declines. We also find evidence consistent with the profitability of short selling following price declines being driven by valuation-based positions. Overall, our findings suggest short sellers primarily undertake valuation-based strategies following price declines and have implications for regulators. Limiting short selling following price declines is likely to impede efficient price discovery.
dc.publisherInstitute for Operations Research and the Management Sciences
dc.sourceManagement Science
dc.titleDoes short-selling amplify price declines or align stocks with their fundamental values?
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume60
dc.date.issued2014
local.identifier.absfor150205 - Investment and Risk Management
local.identifier.absfor150103 - Financial Accounting
local.identifier.ariespublicationu9900263xPUB171
local.type.statusPublished Version
local.contributor.affiliationCurtis, Asher, University of Washington
local.contributor.affiliationFargher, Neil, College of Business and Economics, ANU
local.description.embargo2037-12-31
local.bibliographicCitation.issue9
local.bibliographicCitation.startpage2324
local.bibliographicCitation.lastpage2340
local.identifier.doi10.1287/mnsc.2013.1872
local.identifier.absseo900101 - Finance Services
dc.date.updated2015-12-09T07:29:38Z
local.identifier.scopusID2-s2.0-84907404030
local.identifier.thomsonID000341870500011
CollectionsANU Research Publications

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