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Handbook of Short Selling

Book Description

This comprehensive examination of short selling, which is a bet on stocks declining in value, explores the ways that this strategy drives financial markets. Its focus on short selling by region, its consideration of the history and regulations of short selling, and its mixture of industry and academic perspectives clarify the uses of short selling and dispel notions of its destructive implications. With contributions from around the world, this volume sheds new light on the ways short selling uncovers market forces and can yield profitable trades.



  • Combines academic and professional research on short selling in all major financial markets
  • Emphasizes details about strategies, implementations, regulation, and tax advantages
  • Chapters provide summaries for readers who want up-to-date maps of subject landscapes


Table of Contents

  1. Cover image
  2. Table of Contents
  3. Front Matter
  4. Copyright
  5. Preface
  6. Acknowledgments
  7. About the Editor
  8. Contributor Bios
  9. Chapter 1. Short Sales and Financial Innovation
  10. 1.1. Introduction
  11. 1.2. Markets with Short Sales
  12. 1.3. Gains from Trade
  13. 1.4. Social Diversity, Volatility, and Default
  14. 1.5. Financial Innovation Creates Systemic Risks of Widespread Defaults
  15. 1.6. Introducing Graduated Reserves
  16. 1.7. Graduated Reserves Restore Stability and Prevent Default
  17. 1.8. Conclusion
  18. Chapter 2. The Goldman Sachs Swaps Shop
  19. 2.1. Introduction
  20. 2.2. “Weapons of Mass Financial Destruction”
  21. 2.3. Key Sources of Relevant U.S. Securities Law
  22. 2.4. SEC v. Goldman Sachs & Co., et al.—The Complaint
  23. 2.5. Vampyroteuthis Infernalis—Collateral Consequences
  24. 2.6. Conclusion
  25. Chapter 3. Off-Shore Short Sales after Morrison
  26. 3.1. Introduction
  27. 3.2. Goldman and Paulson Enter into a Marriage of Convenience
  28. 3.3. The Securities and Exchange Commission Charges Goldman and Tourre with Securities Fraud in Connection with ABACUS Structuring and Marketing
  29. 3.4. Climax: Dodd–Frank Affords the Securities and Exchange Commission Extraterritorial Jurisdiction
  30. 3.5. Conclusion—Tourre and His Cohorts Celebrate a Pyrrhic Victory
  31. Chapter 4. Regulating Short Sales in the 21st Century
  32. 4.1. Introduction
  33. 4.2. U.S. Short Sale Regulation Background
  34. 4.3. Current Securities and Exchange Commission Regulation of Short Selling Activity
  35. 4.4. Conclusion
  36. Chapter 5. Evolution of Short Selling Regulations and Trading Practices
  37. 5.1. Introduction
  38. 5.2. Literature Review
  39. 5.3. Historical Background on Short Selling
  40. 5.4. Short Selling and Financial Crisis
  41. 5.5. A Detailed Analysis of Short Selling in Recent Times
  42. 5.6. Conclusion
  43. Chapter 6. Financing Techniques for Short Sellers
  44. 6.1. Introduction
  45. 6.2. Introducing the Repo Market for Fixed Income Securities
  46. 6.3. Length of Trades
  47. 6.4. Special Rate
  48. 6.5. The Repo Market in Bankruptcy
  49. 6.6. Haircuts and Margin Maintenance
  50. 6.7. Financing Equity Short Positions
  51. 6.8. In Lieu Payments and Other Rights
  52. 6.9. Financing Currency Short Positions
  53. 6.10. Financing Commodity Short Positions
  54. 6.11. Trading in the Lending Markets
  55. 6.12. Conclusion
  56. Chapter 7. A Survey of Short Selling in Canada
  57. 7.1. Introduction
  58. 7.2. Current Regulations
  59. 7.3. Taxation of Short Sales
  60. 7.4. Recent Trends in Canada
  61. 7.5. Impact of Recent Short Sale Prohibition
  62. 7.6. Conclusion
  63. Chapter 8. Are Restrictions on Short Selling Good? A Look at European Markets
  64. 8.1. Introduction
  65. 8.2. Short Selling Bans and Analysis of Market Reactions
  66. 8.3. Committee of European Securities Regulators Initiative and Its Impacts on Professional Equity Investments
  67. 8.4. Conclusion
  68. Chapter 9. Short Selling, Clearing, and Settlement in Europe
  69. 9.1. Introduction
  70. 9.2. Short Selling and Settlement Risk
  71. 9.3. Settlement Discipline in Europe
  72. 9.4. Relation between Short Selling Market Discipline and Settlement Discipline
  73. 9.5. Impact of Short Selling and Fails on the Effectiveness of Settlement Discipline Measures
  74. 9.6. Conclusion
  75. Chapter 10. The 2008 Emergency Regulation of Short Selling in the United Kingdom, United States, and Australia
  76. 10.1. Introduction
  77. 10.2. Objectives of Securities Regulation
  78. 10.3. Analysis of Emergency Responses
  79. 10.4. Types and Range of Initiatives
  80. 10.5. Conclusion
  81. Chapter 11. Reflections on Short Selling Regulations in Western and Eastern Europe
  82. 11.1. Introduction
  83. 11.2. A Review of the National Regulatory Regimes in the European Union (EU)
  84. 11.3. The Case of Eastern Europe
  85. 11.4. The New European Commission's Draft Regulation
  86. 11.5. Conclusion
  87. Chapter 12. Regulating Short Selling
  88. 12.1. Introduction
  89. 12.2. Theoretical Views of Short Selling Regulation
  90. 12.3. European Regulations after the Lehman Brothers Collapse
  91. 12.4. Regulatory Asymmetries and Arbitrage
  92. 12.5. Conclusion
  93. Chapter 13. Do Option Prices Reveal Short Sale Restrictions Impact on Banks’ Stock Prices? The German Case*
  94. 13.1. Introduction
  95. 13.2. Literature Review
  96. 13.3. Methodology
  97. 13.4. Data
  98. 13.5. Do Options Prices Reveal Short Sale Restrictions?
  99. 13.6. Conclusion
  100. Chapter 14. Short Selling in France during the Crisis, the Bans, and What Has Changed since the Euro Correction
  101. 14.1. Introduction
  102. 14.2. Literature Review
  103. 14.3. Regulatory Developments Concerning Short Selling in France
  104. 14.4. Statistics
  105. 14.5. Discussion
  106. Chapter 15. The Chinese Real Estate Bubble
  107. 15.1. Introduction
  108. 15.2. Comparison with the United States
  109. 15.3. The Bubble in China
  110. 15.4. The Debt Deflation Model—Does It Apply to China?
  111. 15.5. The Stock Market—Forecasting the Bursting of the Bubble?
  112. 15.6. Problems in Shorting Chinese Stocks
  113. 15.7. Conclusion
  114. Chapter 16. Introduction of Margin Trading and Short Selling in China's Securities Market
  115. 16.1. Introduction
  116. 16.2. The Disordered Warrant Price in China's Securities Market
  117. 16.3. Development of Margin Trading and Short Selling in China
  118. 16.4. Introduction and Interpretation of China's Key Rules on Margin Trading and Short Selling
  119. 16.5. Conclusion
  120. Chapter 17. Impact of Short Selling on China Stock Prices
  121. 17.1. Introduction
  122. 17.2. Literature Review
  123. 17.3. Methodology
  124. 17.4. Sample and Hypotheses
  125. 17.5. Empirical Findings
  126. 17.6. Conclusion
  127. Chapter 18. Short Selling the Real Estate Bubble in China
  128. 18.1. Introduction
  129. 18.2. Is There a Bubble in China's Real Estate Market?
  130. 18.3. How to Short Sell the Real Estate Bubble
  131. 18.4. Conclusion
  132. Chapter 19. Impact of Macroeconomic Indicators on Short Selling
  133. 19.1. Introduction
  134. 19.2. Data and Brief Overview of Japanese Macroeconomic Indicators
  135. 19.3. Data and Methodology
  136. 19.4. Conclusion
  137. Chapter 20. New Regulatory Developments for Short Selling in Asia
  138. 20.1. Introduction
  139. 20.2. Typical Short Selling Constraints
  140. 20.3. Examples of a Few Asian Countries
  141. 20.4. Recent Developments in China
  142. 20.5. Conclusion
  143. Chapter 21. The Signaling of Short Selling Activity in Australia
  144. 21.1. Introduction
  145. 21.2. Literature Review
  146. 21.3. Data and Methodology
  147. 21.4. Findings
  148. 21.5. Conclusion
  149. Chapter 22. Sourcing Securities for Short Sales
  150. 22.1. Introduction
  151. 22.2. Transactional Attributes of Securities Loans
  152. 22.3. Securities Loans and Short Sales
  153. 22.4. Securities Loans and Voting Rights
  154. 22.5. Legal Characterization of Securities Loans
  155. 22.6. Conclusion
  156. Chapter 23. Short Selling in Emerging Markets
  157. 23.1. Introduction
  158. 23.2. Short Selling in Emerging Markets: Main Characteristics
  159. 23.3. Emerging Market Main Indicators
  160. 23.4. Conclusion
  161. Chapter 24. Short Selling and the Problem of Market Maturity in Latin America
  162. 24.1. Introduction
  163. 24.2. Review of National Regulatory Regimes in Latin America
  164. 24.3. Previous Studies on Short Selling in Latin America
  165. 24.4. The Practice of Short Selling in Latin America
  166. 24.5. Conclusion
  167. Chapter 25. Short Selling—The Ambrosia or Kryptonite of Emerging Markets?
  168. 25.1. Introduction
  169. 25.2. Emerging Market Benefits from Short Selling
  170. 25.3. Risk of Short Selling to an Emerging Market
  171. 25.4. Short Selling in BRIC Nations
  172. 25.5. Short Selling in Other Key Areas
  173. 25.6. Helpful Investor Mechanisms
  174. 25.7. Conclusion
  175. Chapter 26. Short Selling Consistency in South Africa
  176. 26.1. Introduction
  177. 26.2. Johannesburg Stock Exchange and Financial Markets Regulation
  178. 26.3. South African Markets prior to and during the Global Financial Crisis
  179. 26.4. South African Short Selling Rules
  180. 26.5. Conclusion
  181. Chapter 27. Short Selling in Russia
  182. 27.1. Introduction
  183. 27.2. Main Regulations and Practices
  184. 27.3. Empirical Analysis: A Comparison of Asset Allocation Strategies
  185. 27.4. Conclusion
  186. Chapter 28. Performance Persistence of Short-Biased Hedge Funds
  187. 28.1. Introduction
  188. 28.2. What are Short-Biased Hedge Funds?
  189. 28.3. Past Performance of Short-Biased Hedge Funds
  190. 28.4. Future Performance of Short-Biased Hedge Funds
  191. 28.5. Asset Allocation and Short-Biased Hedge Funds
  192. 28.6. Conclusion
  193. Chapter 29. An Empirical Analysis of Short-Biased Hedge Funds’ Risk-Adjusted Performance
  194. 29.1. Introduction
  195. 29.2. Literature Review
  196. 29.3. Data Analysis
  197. 29.4. Empirical Analysis: A Panel Approach
  198. 29.5. Conclusion
  199. Chapter 30. Short Selling by Portfolio Managers
  200. 30.1. Introduction
  201. 30.2. Data Description
  202. 30.3. Research Question/Hypothesis
  203. 30.4. Methodology
  204. 30.5. Results
  205. 30.6. Conclusion
  206. Chapter 31. Short Selling in an Asset Allocation Framework—The Search for Alpha
  207. 31.1. Introduction
  208. 31.2. A Stylized Example
  209. 31.3. Alpha Transportation in Practice
  210. 31.4. An Illustrative Example
  211. 31.5. Conclusion
  212. Chapter 32. Machine Learning and Short Positions in Stock Trading Strategies
  213. 32.1. Introduction
  214. 32.2. Literature Review
  215. 32.3. Data and Methodology
  216. 32.4. Empirical Results
  217. 32.5. Conclusion
  218. Chapter 33. Short Selling Stock Indices on Signals from Implied Volatility Index Changes
  219. 33.1. Introduction
  220. 33.2. Literature Review
  221. 33.3. Data and Methodology
  222. 33.4. Results
  223. 33.5. Conclusion
  224. Chapter 34. Short Selling and the Equity Premium Puzzle
  225. 34.1. Introduction
  226. 34.2. Theory
  227. 34.3. Data
  228. 34.4. Impact of Short Selling in a Heterogeneous Group of Investors
  229. 34.5. Discussion
  230. 34.6. Conclusion
  231. Chapter 35. Affine Term Structure Models and Short Selling
  232. 35.1. Introduction
  233. 35.2. Affine Term Structure Models
  234. 35.3. Macroeconomic Shocks Affecting Government Surpluses Are Affine
  235. 35.4. Some Evidence on Affine Term Structure Models
  236. 35.5. Risks of Sovereign Debt Rollover
  237. 35.6. How Multiple Equilibrium Works and How It Could Result in “Runs” on Government Issuances
  238. 35.7. Prohibition in Naked Short Selling: A Poor Workaround with Little Effective Consequences
  239. 35.8. Conclusion
  240. Chapter 36. Short Sale Constraints in the Equity Market and the Term Structure of Interest Rates
  241. 36.1. Introduction
  242. 36.2. Data and Method
  243. 36.3. Main Findings
  244. 36.4. Conclusion and Policy Implications
  245. Chapter 37. Short Selling Assessment Where Consumer Prices Involve Both Currency Trades and Weather Shocks
  246. 37.1. Introduction
  247. 37.2. Methodology
  248. 37.3. Data and Empirical Application
  249. 37.4. Conclusion
  250. Chapter 38. Aggregate Short Selling during Earnings Seasons
  251. 38.1. Introduction
  252. 38.2. Data and Methodology
  253. 38.3. Empirical Results
  254. 38.4. Conclusion
  255. Chapter 39. The Information Content of Short Selling before Macroeconomic Announcements
  256. 39.1. Introduction
  257. 39.2. Data Sources and Sample Details
  258. 39.3. Measures and Methods
  259. 39.4. Results
  260. 39.5. Conclusion
  261. Index