会议专题

Do Arbitrageurs Amplify Economic Shocks?

We examine whether arbitrageurs amplify fundamental shocks in the context of short arbitrage in equity markets. The ability of arbitrageurs to hold on to short positions depends on asset values: shorts are often reduced following good news about a stock. As a result,the prices of highly shorted stocks are excessively sensitive to economic shocks. Using monthly short interest data and exploiting differences in short selling regulations across stock exchanges to instrument for the amount of shorting in a stock,we find the following. (1) The price of a highly shorted stock is more sensitive to earnings news than a stock with little short interest. (2) Short interest changes around announcements (proxied by share turnover) are more sensitive to earnings surprises for highly shorted stocks. (3) For highly shorted stocks,returns to shorting are higher following better earnings news. (4) These differential sensitivities are driven by very good earnings news as opposed to very bad earnings news. These findings point to the importance of limited arbitrage in affecting asset price dynamics and the potentially destabilizing role of speculators.

Tal Fishman Harrison Hong Jeffrey D.Kubik

Princeton University Syracuse University

国际会议

2007年中国国际金融年会

成都

英文

2007-07-09(万方平台首次上网日期,不代表论文的发表时间)