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Journal of Financial Economics Vol. 114 No. 3 2014

Fails-to-deliver, short selling, and market quality

Veljko Fotak1; Vikas Raman2; Pradeep Yadav3

1 University at Buffalo, State University of New York · 2 University of Warwick · 3 University of Oklahoma

Abstract

We investigate the aggregate market quality impact of equity shares that fail to deliver (hereafter “FTDs”). For a sample of 1,492 NYSE stocks over a 42-month period from 2005 to 2008, greater FTDs lead to higher liquidity and pricing efficiency, and their impact is similar to our estimate of delivered short sales. Furthermore, during the operative period of a Security and Exchange Commission (SEC) order mandating stock borrowing prior to short sales, the securities affected display relatively lower liquidity and higher pricing errors. Finally, we do not find any evidence that FTDs caused price distortions or the failure of financial firms during the 2008 financial crisis.

DOI
10.1016/j.jfineco.2014.07.012
Volume
114
Issue
3
Pages
493-516
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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