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Are Short Sellers Positive Feedback Traders? Discussion . A.G. Malliaris, Quinlan School of Business Loyola University Chicago Multinational Finance Conference, Krakow, June 24-27, 2012 . Background. Role of Short Sellers: Do they stabilize or destabilize markets?

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Are short sellers positive feedback traders discussion

Are Short Sellers Positive Feedback Traders? Discussion

A.G. Malliaris,

Quinlan School of Business

Loyola University Chicago

Multinational Finance Conference,

Krakow, June 24-27, 2012


Background
Background

  • Role of Short Sellers: Do they stabilize or destabilize markets?

  • Are Short Sellers Smart? Fundamentalists?

  • How Should Regulators Respond?


Purpose of this paper
Purpose of this Paper

  • Investigate Short Selling Regimes During the Global Financial Crisis

  • Why is this Interesting? What is the Role of the Crisis?

  • Regulators imposed bans on Short Sales

  • This Allows to test the impact of such bans: did the bans stabilize or not the markets?


Methodology
Methodology

  • One equation model with Fundamental traders and Feedback traders

  • Introduce a Dummy variable equal to 1 is short sales are restricted and 0 otherwise.

  • Examine feedback trading

  • Examine Conditional Variance

  • Nice sample of daily data of financial firms in 6 countries


Results and comments
Results and Comments

  • Bans of Short Selling are Ineffective, i.e. bans do not stabilize markets

  • C1: What about individual differences among US, UK, Germany vs. France, S. Korea and Australia?

  • C2: How to control for the magnitude of short selling?

  • C3: As always we have joint testing: Market efficiency during a crisis?


Comments
Comments

  • C4: During a crisis with a ban on some sector how options and futures markets behave?

  • C5: If Short sellers are fundamentalist and restricted what other strategies do they follow?

  • C6: Can we claim that banned short sellers do not act as feedback technical traders?

  • C7: Nice paper that challenges us to develop a comprehensive hypothesis about short selling


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