Short‐selling costs and asymmetric price response to economic shocks: A transaction cost explanation to price overshooting

Autor:	José Renato Haas Ornelas, Pablo Jose Campos de Carvalho
Rok vydání:	2020
Předmět:	Transaction cost Economics and Econometrics 050208 finance Earnings 05 social sciences Monetary economics Empirical research Accounting 0502 economics and business Economics Arbitrage 050207 economics Price response Finance
Zdroj:	International Journal of Finance & Economics. 26:1745-1772
ISSN:	1099-1158 1076-9307
Popis:	We propose a model that combines performance‐based arbitrage, short‐sale constraints, and costly arbitrage. In the model, good earnings surprises trigger short‐covering causing price overshooting for highly shorted stocks. However, price overshooting is on average lower than short‐selling costs. Model predictions are empirically tested using Brazilian short‐selling data. We find empirical support for the short‐covering and overshooting phenomena. Furthermore, there is evidence that the intensity of overshooting is lower than the short‐selling borrowing fee, for both U.S. and Brazilian markets. Theoretical and empirical results suggest that arbitrageurs behave asymmetrically to good and bad earnings news.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::26fe7ce1b087ec58eff1f050febb0dd2 https://doi.org/10.1002/ijfe.1876 Zobrazit plný text záznamu Plný text