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Short selling in extreme events
Geraci, Marco Valerio Garbaravicius, Tomas Veredas, David
Geraci, Marco Valerio
Garbaravicius, Tomas
Veredas, David
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2018
Journal
Journal of Financial Stability
Book
Publication Volume
39
Publication Issue
December
Publication Begin page
90
Publication End page
103
Publication NUmber of pages
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Abstract
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.
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Keywords
Short selling, Tail correlation