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Short selling and stock returns: evidence from the UK

Mohamad, Azhar and Jaafar , Aziz and Hodgkinson, Lynn and Wells, Jo (2013) Short selling and stock returns: evidence from the UK. The British Accounting Review, 45 (2). pp. 125-137. ISSN 0890-8389

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Abstract

The practice of shorting stocks was put forward as one of the causes of the recent financial crisis whereas Shiller (2003), for example, considers shorting an essential element of an efficient market. Shorting involves selling borrowed stocks and subsequently closing the position by purchasing and returning the stock to the lender. A profit will be realised if the stock’s price decreases. Shorting enables investors who do not own a perceived overvalued stock to sell. Using a high frequency UK dataset for the period between September 2003 and April 2010, our findings suggest shorting indicates evidence of overvalued stocks as significantly negative abnormal stock returns appear to follow an increase in shorting. These results do not hold, however, for shorting which occurs around the ex-dividend date. We further find that these results hold during the recent financial crisis.

Item Type: Article (Journal)
Additional Information: 3334/28461
Uncontrolled Keywords: short interest, short selling, stock returns, abnormal returns
Subjects: H Social Sciences > HG Finance > HG4001 Financial management. Business finance. Corporation finance.
H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User: Dr Azhar Mohamad
Date Deposited: 13 Jan 2013 21:19
Last Modified: 12 Sep 2013 10:28
URI: http://irep.iium.edu.my/id/eprint/28461

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