When short selling is costly, owners of an asset have greater incentive to become informed than nonowners because trading on negative information is easier for them. Thus, information acquisition concentrates among investors owning the asset. A short selling ban restricts selling to only the relatively more informed investors who own the asset, increasing adverse selection but only on the sell side of the market. Price efficiency declines due to less overall information acquisition because a ban magnifies the disincentive to gather information for investors not owning the asset. Empirical evidence from the 2008 U.S. short selling ban is consistent with these theoretical predictions.

Peter B. Dixon, Constantino Lluch; Durable Goods in the Extended Linear Expenditure System, The Review of Economic Studies, Volume 44, Issue 2, 1 June 1977, Pag

EVER since the publication of Rachel Carson's famous book, Silent Spring (1962), insecticide pollution has been an important public issue. As well as naturalists and medical researchers, economists have joined the discussion. They have rightly claimed that insecticide usage is an economic phenomenon, and they have proceeded to estimate the costs and production losses from total or partial bans.' In this paper, we consider the possibility of reducing United States insecticide usage through an efficient relocation of agricultural activities. We find that if agricultural activities were located so as to minimize the production and transportation costs to satisfy the demand for agricultural products, there would be a substantial reduction in insecticide requirements. Our argument is organized as follows. In section II, we describe United States insecticide usage, emphasizing regional differences. Section III is a discussion of studies of efficient crop relocation, i.e., studies concerned with the location of crops under cost minimizing conditions and without the influence of government price support and land retirement schemes. In section IV, we estimate the insecticide requirements for an efficient agricultural sector. The estimates are repeated in section V with alternative measures of insecticide usage, and our conclusions are summarized in section VI.

We present evidence that short sellers alternate between stock picking during expansions and market timing during recessions. First, firm-level short interest is a much stronger negative predictor of the cross-section of stock returns during expansions than it is during recessions. High short interest also only predicts negative future earnings announcement returns during expansions. We attribute these findings to short sellers’ emphasis on collecting firm-specific signals. Second, short sellers appear to make factor bets more so during recessions than during expansions. These bets tend to pay off as we observe a strong negative relation between the betas of highly shorted stocks and future stock market returns, a result that disappears during expansions. Together, these findings are consistent with theories of information acquisition under attention constraints, endogenous information production, as well as theories of time variation in aggregate overconfidence amongst traders.

ABSTRACT We introduce a simple measure of informed trading risk, , the residual to liquidity quote‐improvement‐to‐deterioration ratio times . When facing with increased informed trading risk, liquidity providers compete less to provide liquidity, reducing their undercutting activity. Reductions in undercutting leave footprints in trade and quote data that are captured by . Unlike prior measures, is easy to construct, can be computed intraday, and is orthogonal to liquidity. The measure outperforms prominent existing alternatives in reflecting the extent of information asymmetry before earnings announcements, predicting unscheduled press releases, and identifying informed trading spillovers around them.

In a standard stock loan, the borrower reimburses the lender any dividends paid while the loan is outstanding. Since these substitute dividends may be taxed differently than dividend payments themselves, some investors have incentives to either remove their shares from lendable supply–if they pay high taxes on substitute dividends–or lend out their shares to arbitrageurs–if they pay high taxes on dividends. Consistent with these incentives, we find a significant tightening of the equity lending market on dividend record days driven by both a contraction of supply and an expansion of demand–although the demand effect appears to dominate. We then exploit the plausibly exogenous nature of these shifts to causally link tightness in the lending market to wider effective spreads in the stock market.

Economywide Implications from US Bioenergy Expansion by Mark Gehlhar, Agapi Somwaru, Peter B. Dixon, Maureen T. Rimmer and Ashley R. Winston. Published in volume 100, issue 2, pages 172-77 of American Economic Review, May 2010