Naked Short Selling and the Market Impact of Fails-to-Deliver

Evidence from the Trading of Real Estate Investment Trusts

Erik Devos*, Thomas McInish, Michael McKenzie, James Upson

*Corresponding author for this work

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Naked short selling and purposeful fails-to-deliver have been identified in the popular press and by the SEC as contributing factors to the stock market decline in 2008. We investigate the market impact of the announcement that fails-to-deliver have occurred for a sample of real estate investment trusts (REITs). We find little evidence that this announcement affects returns or has any market manipulation ability. We find that fails-to-deliver are most consistent with a 1 to 3 days delivery difference between the short sale and offsetting covering trades. These results hold independent of the type of REIT (equity or mortgage REITs). Overall, our findings suggest that naked short selling and purposeful fails-to-deliver may not have contributed much to REIT losses during the financial crisis.

Original languageEnglish
Pages (from-to)454-476
Number of pages23
JournalJournal of Real Estate Finance and Economics
Volume49
Issue number4
DOIs
Publication statusPublished - 1 Nov 2014

Keywords

  • Fails-to-deliver
  • Financial Crisis
  • Regulation
  • REITs
  • Short Selling

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