This thesis studies the momentum trading strategies, in which investors buy stocks that performed well in the past and sell stocks that underperformed over the same peiord of time. We examine the momentum strategies from January of 1995 to September of 2006. This thesis has two purposes. First, do the momentum trading strategies generate positive abnormal returns ? Second, do the momentum trading strategies generate positive abnormal returns even after we consider the limits of short-selling stocks ? The results indicate that the momentum trading strategies generate significant positive returns. Furthermore, the momentum trading strategies still offer positive abnormal returns even after the limits of short-selling shares are taken into account, although the magnitude of positive abnormal returns decreases.

Background:   Problem:   Purpose:   Method:   Conclusion: Based on our findings we do not advocate short sale regulations tobe introduced on the Swedish financial market. Neither does our analysis indicate that the market performance is significantly affected by shorting, nor does restrictions work as intended which we have seen in other countries during the fall of 2008. The analysis have been drawn from four cornerstones; previousresearch, actions of other countries’, a statistical analysis and interview findings. We have examined and compiled different strategies for restricting short sales around the world as well as conducted a cross-correlation analysis to investigate if share price is related to stock loan. Furthermore we have interviewed a professional investor and a middle manager at the Swedish Financial Supervisory Board to obtain experts’ views on the subject. With background of other countries’ actions, the purpose of thisreport is to investigate why, if at all, short sale regulations should be introduced on the Swedish financial market. Is there a correlation between the number of shorted shares and thechange in overall and individual stock price? What actions have been taken by countries in Europe, Asia and the United States regarding short selling during the fall of 2008 and what is SFSB’s attitude towards the subject? Are there any benefits for the Swedish financial market from shorting regulations? In times of financial crisis short selling is often quickly blamed for price volatility and media broadcasts pleads for prohibitions and restrictions. Extensive research, however, cannot find any empirical evidence that shorting is affecting markets negatively; often it is the other way around. Sweden has been relatively liberal when it comes to shorting restrictions and even though share lending has increased since the start of the year, no actions have been taken by the Swedish Financial Supervisory Board.

The recent SEC ban on short selling has presented an unrivaled opportunity to explore the effects of short selling constraints on crashes, market efficiency, and volatility. In this paper I carry out two groups of empirical tests on the individual banned stocks and a series of portfolios created from them: the first tests the hypothesis that short sale constraints increase the frequency and magnitude of crashes, by testing Hong & Stein’s (2003) model of market crashes. The second tests the hypothesis that short sale constraints reduce market efficiency, by testing Miller’s (1977) model in which stocks that are hard (or impossible) to short tend to exhibit overpricing. In regards to the first group of tests, the results are ambiguous: the frequency and magnitude of crashes increased during the ban period, while the skewness of the returns distribution of the portfolios became more negative, as expected, but these changes hold for the market as a whole, as well. On the other hand, the skewness of the returns distribution of the individual banned stocks became more positive. The second group of tests provides ample support for Miller’s model, as the results coincide with the models predictions: banning short selling leads to positive abnormal returns (overpricing) in the affected stocks. The ban is also related with a decrease in volatility relative to the market, an important result from a policy perspective.

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<p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p> </p><p><strong><strong><p>Background:</p></strong><p> </p><strong><strong><p>Problem:</p></strong><p> </p><strong><strong><p>Purpose:</p></strong><p> </p><strong><strong><p>Method:</p></strong><p> </p><strong><strong><p>Conclusion:</p></strong></strong>Based on our findings we do not advocate short sale regulations to<p>be introduced on the Swedish financial market. Neither does our</p><p>analysis indicate that the market performance is significantly affected</p><p>by shorting, nor does restrictions work as intended which we have</p><p>seen in other countries during the fall of 2008.</p></strong>The analysis have been drawn from four cornerstones; previous<p>research, actions of other countries’, a statistical analysis and</p><p>interview findings. We have examined and compiled different</p><p>strategies for restricting short sales around the world as well as</p><p>conducted a cross-correlation analysis to investigate if share price is</p><p>related to stock loan. Furthermore we have interviewed a</p><p>professional investor and a middle manager at the Swedish Financial</p><p>Supervisory Board to obtain experts’ views on the subject.</p></strong>With background of other countries’ actions, the purpose of this<p>report is to investigate why, if at all, short sale regulations should be</p><p>introduced on the Swedish financial market.</p></strong>Is there a correlation between the number of shorted shares and the<p>change in overall and individual stock price? What actions have been</p><p>taken by countries in Europe, Asia and the United States regarding</p><p>short selling during the fall of 2008 and what is SFSB’s attitude</p><p>towards the subject? Are there any benefits for the Swedish financial</p><p>market from shorting regulations?</p></strong>In times of financial crisis short selling is often quickly blamed for</p><p>price volatility and media broadcasts pleads for prohibitions and</p><p>restrictions. Extensive research, however, cannot find any empirical</p><p>evidence that shorting is affecting markets negatively; often it is the</p><p>other way around. Sweden has been relatively liberal when it comes</p><p>to shorting restrictions and even though share lending has increased</p><p>since the start of the year, no actions have been taken by the</p><p>Swedish Financial Supervisory Board.</p><p> </p><p> </p>

Thesis (Ph. D.)--State University of New York at Binghamton, Department of Economics, 2009. / Includes bibliographical references (leaves 94-95).

My dissertation contains three essays on short-selling, margin trading, and market efficiency. The first essay uses a unique exogenous event, the introduction of short selling in the Chinese stock market, to examine the direct link between idiosyncratic risk and short selling. Based on Shleifer and Vishny (1997), I hypothesize that idiosyncratic risk deters arbitrageurs with negative information from taking short positions in overvalued stocks. Consequently, the stocks with high idiosyncratic risk are more overvalued at the onset of the introduction of short sale and perform worse in the subsequent period. The second essay examines the impact of the introduction of margin trading and short selling in the Chinese stock market on market quality. The third essay examines the relationship between short selling and SEO discount under the SEC’s amendment to Rule 105. If the amendment is binding, the short-selling prior to seasoned equity offering (SEO) should correctly reflect negative information and promote price efficiency. Thus the winner’s curse problem during SEO process is reduced and the value discount of a SEO should be less

Thesis (PhD)--Stellenbosch University, 2012. / The impacts on the active management of investment portfolios of a) market concentration, b) cross-sectional return dispersion and c) restrictions on short sales are explored in this thesis. The context is the fund sponsor’s management of their investment managers in a South African equity investment environment. Some of the findings here are developed analytically and some make use of multiple simulated investment views and their corresponding optimal portfolio solutions to document the size and nature of the inefficiencies that are created by these three factors. The cross-sectional volatility of asset returns in an investment universe represents a carrying capacity for active risk taking: the higher the cross-sectional volatility, the greater the opportunity for active risk taking. Cross-sectional volatility is shown to be an important consideration when setting active risk targets. It is shown that, to remain efficient, active risk should be reduced during periods of low cross-sectional dispersion and vice versa. The sensitivity of active risk estimates to changes in the cross-sectional dispersion of their investment universe is demonstrated and sponsors should therefore exercise caution when reacting to changes in the active risk estimates of their funds. Cross-sectional volatility is shown to be time-varying and is related to similarly varying dispersion in realised fund returns. The ex post performance of competing portfolio managers therefore require correction for this heteroscedasticity and an effective weighted adjustment is recommended. Active managers can only fully express their views in an environment where their mandated conditions accommodate their conviction and level of risk taking. The short sale restriction is shown to be materially binding when applied to a concentrated benchmark such as the ALSI where only a few of the stocks comprise most of the total investment weight. The more concentrated the benchmark and the higher the active risk target, the wider the distribution of individual asset weights in the portfolio will be and the more binding the weighting constraints will be. It is shown that constraints on short positions are more binding on assets with small weightings in the benchmark illustrating the asymmetrical sub-optimal effect of these constraints when they are applied uniformly across the investment opportunity set. It is argued that requiring long-only managers to increase their active positions and/or active risk in a concentrated investment environment further constrains them in their ability to express their best investment view and increases their competitive disadvantage relative to unconstrained funds taking similar risk. The research presented in this thesis measures the nature and size of the impacts of the market concentration, cross sectional return dispersion and restrictions on short sales that are implied by the investment mandate on the quality of the investment portfolio, providing analysis and techniques which can inform and improve the quality of the relationship between fund sponsor and fund manager. The more appropriate the investment mandate and the monitoring of the fund’s performance subject to this mandate, the more effective the manager’s risk-taking on behalf of their investors will be. This is the principle that this research aims to serve.

本文以次貸風暴期間英國金融服務管理局的限制放空政策為研究對象，探討該政策對股票報酬率、股票波動度之影響。本研究將研究期間分為限制放空期間、允許放空期間，並將英國金融服務管理局公布的限制放空名單劃分為銀行業、財務顧問業、壽險業、產險業，利用GJR模型分析限制放空政策對不同產業影響的差異性。 實證結果證明，除少數銀行類股在限制放空期間的股價報酬率顯著低於允許放空期間，大部分限制放空個股的報酬率在兩期間並無顯著差異，然而限制放空期間幾乎所有研究樣本的股票波動度卻顯著提高。顯見政府限制放空政策不一定能有效抑制股價跌幅，卻會加劇股票波動性，加劇市場震盪。 / UK’s Financial Service Authority banned short selling on financial stocks during subprime crisis. This paper investigates the effects of short-selling restrictions on stocks’ return and volatility in the United Kingdom. After dividing the sample period into banned and no-banned period and classifying the samples into banking, financial consulting, life insurance and nonlife insurance industries, we explore the impact of short-selling restrictions using GJR-GARCH models on individual firms in different industries. We find that stock returns of most samples in the short-selling banned period are not significantly different from the ones in the no-banned period except for a few stocks in the banking industry. However, we also find that stock volatility is significantly higher in short-selling banned period for most samples. Our results show that short-selling restrictions imposed by the U.K. government have only limited effects on stock return, but have significantly alleviated stock volatility.

Short selling came onto the centre stage during the recent financial crisis when the collapse in price of financial listed securities after the demise of Lehman Brothers led to the introduction of a number of temporary short selling bans. In Europe however it was the commencement of the recent European sovereign debt crisis that was the true stimulus for proposing new short selling rules, the culmination of which was the introduction of the European Short Selling Regulation (the 'Regulation'). The thesis asks whether the Regulation is a justifiable response to the concerns posed by short selling. Such issues are measured against the relevant economic literature that almost overwhelmingly demonstrates that short selling contributes to market efficiency, that restrictions generally make markets less efficient and that constraints do not achieve the desired objective of stabilising prices. The thesis then analyses the political economy and backdrop to the Regulation’s introduction that largely dictated the shape of the final rules. The precise legislative choices made by Europe, including with respect to sovereign credit default swaps, are analysed, and (where relevant) there is a comparative element with a consideration of the US short sale regulations. These rules are used as a contrast and as a means of commenting more effectively on the European provisions. The doctorate concludes that the Regulation is not a justifiable response to policymakers' concerns and that the rules have suffered from the politicisation of the legislative process. The thesis suggests that short-term political point scoring has triumphed over the long-term benefits of market efficiency and that short sellers are now the subjects of highly technical rules that will negatively impair on market efficiency. Although, with time, parties may learn to use the new rules to their advantage, this does not justify the introduction of unreasonable rules in the first place.