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Are Short Sellers Positive Feedback Traders? Discussion

Are Short Sellers Positive Feedback Traders? Discussion . A.G. Malliaris, Quinlan School of Business Loyola University Chicago Multinational Finance Conference, Krakow, June 24-27, 2012 . Background. Role of Short Sellers: Do they stabilize or destabilize markets?

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Are Short Sellers Positive Feedback Traders? Discussion

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  1. Are Short Sellers Positive Feedback Traders? Discussion A.G. Malliaris, Quinlan School of Business Loyola University Chicago Multinational Finance Conference, Krakow, June 24-27, 2012

  2. Background • Role of Short Sellers: Do they stabilize or destabilize markets? • Are Short Sellers Smart? Fundamentalists? • How Should Regulators Respond?

  3. Purpose of this Paper • Investigate Short Selling Regimes During the Global Financial Crisis • Why is this Interesting? What is the Role of the Crisis? • Regulators imposed bans on Short Sales • This Allows to test the impact of such bans: did the bans stabilize or not the markets?

  4. Methodology • One equation model with Fundamental traders and Feedback traders • Introduce a Dummy variable equal to 1 is short sales are restricted and 0 otherwise. • Examine feedback trading • Examine Conditional Variance • Nice sample of daily data of financial firms in 6 countries

  5. Results and Comments • Bans of Short Selling are Ineffective, i.e. bans do not stabilize markets • C1: What about individual differences among US, UK, Germany vs. France, S. Korea and Australia? • C2: How to control for the magnitude of short selling? • C3: As always we have joint testing: Market efficiency during a crisis?

  6. Comments • C4: During a crisis with a ban on some sector how options and futures markets behave? • C5: If Short sellers are fundamentalist and restricted what other strategies do they follow? • C6: Can we claim that banned short sellers do not act as feedback technical traders? • C7: Nice paper that challenges us to develop a comprehensive hypothesis about short selling

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