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http://dx.doi.org/10.5762/KAIS.2016.17.6.560

Short Selling and Predictability of Negative Sock Returns: Evidence from the Korean Stock Market  

Yoo, Shiyong (CAU Business School, Chung-Ang University)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.17, no.6, 2016 , pp. 560-565 More about this Journal
Abstract
In this study, we empirically scrutinize the relationship between short selling transactions and stock price behaviors using the stock market data in Korea during the period from January 2005 to March 2016. We chose the short selling volume ratio (SVR), stock lending volume ratio (LVR), and stock lending open interest ratio (LIR) as variables of the short selling trading activities. We construct portfolios based on the percentile of the short selling volume ratio during the sample period; upper-10%-SVR portfolio, upper-25%-SVR portfolio, upper-50%-SVR portfolio. We estimate the monthly firm-specific return and monthly skewness of the daily firm-specific returns of each portfolio. The firm-specific return or skewness is specified as a dependent variable and the short selling activities as explanatory variables. The results show that all of the statistically significant estimates of the short selling activities for the firm-specific returns are negative and that all of the statistically significant estimates of the skewness of the short selling activities are positive. These results support the hypothesis that short selling activities cause the stock price to decrease.
Keywords
Firm-specific return; Short selling; Skewness; Stock lending; Stock lending open interest ratio;
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