Using Japanese long sample (1977-2010) data, we examine whether short sales are informed trades about future stock returns, whether they contribute to future lower stock prices, and whether short sales are related to over-valuation of the market. We find that short interests do not cause (or contribute to) lower future stock market returns permanently. However, we find that short interest not only responds to a past temporary decline in returns but also anticipates and contributes to future temporary changes in returns—a decline in the short run but an increase in the long run. Further, Japanese short sales tend to take advantage of current overvaluation. Given that short sales are related to overvaluation and anticipate only short-term market declines without contributing to future permanent return declines, strict regulation of short sales may not be needed, in particular, considering that short sales tend to provide liquidity in a downturn market.
Keywords: short sale, informed trade, overvaluation
학회 소식
공지사항
[2014년 제 1차] Are Japanese Short Sellers Information Detectives?
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게시일 :
2014-02-26