Speaker: Jiandong LI, Central University of Finance and Economics
Host: Ji Wu, Associate professor, RIEM
Time: 14:30-16:00, Nov.13, Friday
Venue: Yide H513, Liulin Campus
Abstract:
We apply a panel vector autoregressive model (PVAR) to analyze the lead-lag relation among individual equity returns, short selling and selling in the US equity markets. We show that short sellers are smart money by using an unprecedented approach. When equity returns show reversal, short selling change is positively affected by returns, indicating that short sellers are contrarian traders. When equity returns show momentum, short selling change is negatively affected by returns, indicating that short sellers are momentum traders. Combined results lead to a conclusin that short sellers are able to make money in the equity markets. Moreover, equity returns are not systematically affected by short selling, which implies that short sellers are not manipulating market. We also find that short selling decreases as selling pressure increases in the short horizon due to difficulty to borrow shares, while short selling increases in the long horizon implying that short selling is aligned to selling. Selling ignores short selling in the short run but moves with short selling in the long run. This shows short selling information is influential in the market. These results help us understand short selling behaviors and confirm information contained in the short selling.
