Review of Financial Studies Vol. 28 No. 6 2015
The Real Effects of Short-Selling Constraints
Abstract
We use a regulatory experiment (Regulation SHO) that relaxes short-selling constraints on a random sample of U.S. stocks to test whether capital market frictions have an effect on stock prices and corporate decisions. We find that an increase in short-selling activity causes prices to fall, and that small firms react to these lower prices by reducing equity issues and investment. These results not only provide evidence that short-selling constraints affect asset prices, but also confirm that short-selling activity has a causal impact on financing and investment decisions.
- DOI
- 10.1093/rfs/hhv013
- Volume
- 28
- Issue
- 6
- Pages
- 1737-1767
- Language
- en
- Sources
- openalex crossref