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Short selling and stock returns: Evidence from the UK

Mohamad, A. and Jaafar, A. and Hodgkinson, L. and Wells, J. (2013) Short selling and stock returns: Evidence from the UK. The British Accounting Review, 45 ((2)). pp. 125-137. DOI: 10.1016/j.bar.2013.03.001

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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
Subjects: Research Publications
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Date Deposited: 09 Dec 2014 16:42
Last Modified: 23 Sep 2015 03:06
ISSN: 0890-8389
URI: http://e.bangor.ac.uk/id/eprint/825
Identification Number: DOI: 10.1016/j.bar.2013.03.001
Publisher: Elsevier
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