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Empirical essays on short selling

Mohamad, Azhar (2012) Empirical essays on short selling. PhD thesis, Prifysgol Bangor University.

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Abstract

This thesis sets out to analyse empirically the impact of: i) short selling on stock returns; ii) the UK Financial Services Authority’s (FSA) short selling ban on stock prices, market quality as well as contagion, and iii) short selling on Exchange Traded Fund’s (ETF) returns. A distinction is made between two types of shorts: valuation and dividend arbitrage shorts. Employing an event-study methodology, the empirical results indicate that, whilst large increases in short interest in valuation shorts are associated with significant negative abnormal returns, large increases in dividend arbitrage shorts are less informative. This may imply that these two different types of shorts are executed by two different sets of traders, who are scrutinizing two different sets of information. With respect to dividend arbitrage shorts, however, the informational content of short interest is dependent on the state of the economy. Regarding the impact of the FSA’s short-selling ban on stock prices and market quality, the current study finds no evidence that the FSA’s objective of protecting market quality was achieved through its prohibition of the short selling of financial stocks. Nevertheless, with regard to the FSA’s concerns over cross-sectoral contagion, there is evidence that the short-selling ban may have been successful in preventing contagion, thereby protecting capital market stability. In relation to the informational content of ETF short interest, the present study finds that high increases in short interest are followed by positive abnormal returns, while low increases in short interest are followed by negative abnormal returns. The results indicate that ETF’s short interest does not carry informational content similar to that contained in the short interest on individual stocks and different types of players are involved in the ETF market, namely, the hedgers and speculators.

Item Type: Thesis (PhD)
Subjects: Degree Thesis
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Degree Thesis
Date Deposited: 20 Aug 2015 14:46
Last Modified: 18 May 2016 15:57
URI: http://e.bangor.ac.uk/id/eprint/5117
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