The relationship between short interest and stock returns in the Canadian market [An article from: Journal of Banking and Finance]

This digital document is a journal article from Journal of Banking and Finance, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper provides new insight into the relationship between short sales and stock market returns using a sample of stocks sold short in Canada. Short interest is defined in relation to trading volume. The results strongly support the assertion that short sales and excess returns are contemporaneously negatively correlated in Canada. The paper further finds that excess returns are more negative for small firms because the supply of shortable shares is constrained for these firms. Excess returns are less negative for stocks with associated options and convertible bonds. Importantly, the evidence is consistent with the proposition that informed traders short sell Canadian interlisted stocks in Canada, rather than the US, to exploit lower execution costs. Together the results suggest that less restrictive regulation of short sales will improve the efficiency of markets.