The impact of naked short selling on the securities lending and equity market

Steven Lecce, Andrew Lepone*, Michael D. McKenzie, Reuben Segara

*Corresponding author for this work

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

This paper examines the impact of naked short selling on equity markets where it is restricted to securities on an approved list. Consistent with Miller's (1977) intuition, stocks with the highest dispersion of opinions and short sale constraints are the only stocks to exhibit significant and negative abnormal returns in the post-event period. We also find slightly higher stock return volatility and a small reduction in liquidity when naked short sales are allowed. Overall, it impairs market quality (liquidity and volatility), although there appears to be some improvement in price efficiency in stocks with high short sale constraints.

Original languageEnglish
Pages (from-to)81-107
Number of pages27
JournalJournal of Financial Markets
Volume15
Issue number1
DOIs
Publication statusPublished - Feb 2012
Externally publishedYes

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