Short selling in extreme events
Journal of Financial Stability
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Geraci, M. V., Garbaravicius, T., & Veredas, D. (2018). Short selling in extreme events. Journal of Financial Stability, 39 90-103. https://doi.org/10.1016/j.jfs.2018.09.004
We study the association between daily changes in short selling activity and financial stock prices during extreme events using TailCoR, a measure of tail correlation. For the largest European and US banks, as well as European insurers, we uncover a strong relation during exceptional (extreme) days and a weak relation during normal (average) days. Examining days with large increases in short positions and large downfalls in stock prices, we find evidence of both momentum and contrarian short selling taking place. For North American bank stocks, contrarian short selling appears more practiced than for European bank and insurance stocks. We find that the uncovered relationship decreases with firm size and increases during ban periods, which is in line with short selling becoming more informative when constrained.
short selling, tail correlation
This work was supported by the Communauté française de Belgique [grant number 13/17-055].
External DOI: https://doi.org/10.1016/j.jfs.2018.09.004
This record's URL: https://www.repository.cam.ac.uk/handle/1810/286228
Attribution-NonCommercial-NoDerivatives 4.0 International
Licence URL: http://creativecommons.org/licenses/by-nc-nd/4.0/
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