Handbook of Short Selling - 1st Edition - ISBN: 9780123877246, 9780123877253

Handbook of Short Selling

1st Edition

Editor-in-Chiefs: Greg Gregoriou
Hardcover ISBN: 9780123877246
eBook ISBN: 9780123877253
Imprint: Academic Press
Published Date: 28th September 2011
Page Count: 624
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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.

Key Features

  • 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


  • Primary: Academics worldwide working in subjects connected with trading, risk management, financial modeling, financial regulation, and financial economics in general.
  • Secondary: Professionals working in trading, risk management, financial modeling, financial regulation, and financial economics.
  • Table of Contents



    About the Editor

    Contributor Bios

    Chapter 1. Short Sales and Financial Innovation

    1.1. Introduction

    1.2. Markets with Short Sales

    1.3. Gains from Trade

    1.4. Social Diversity, Volatility, and Default

    1.5. Financial Innovation Creates Systemic Risks of Widespread Defaults

    1.6. Introducing Graduated Reserves

    1.7. Graduated Reserves Restore Stability and Prevent Default

    1.8. Conclusion

    Chapter 2. The Goldman Sachs Swaps Shop

    2.1. Introduction

    2.2. “Weapons of Mass Financial Destruction”

    2.3. Key Sources of Relevant U.S. Securities Law

    2.4. SEC v. Goldman Sachs & Co., et al.—The Complaint

    2.5. Vampyroteuthis Infernalis—Collateral Consequences

    2.6. Conclusion

    Chapter 3. Off-Shore Short Sales after Morrison

    3.1. Introduction

    3.2. Goldman and Paulson Enter into a Marriage of Convenience

    3.3. The Securities and Exchange Commission Charges Goldman and Tourre with Securities Fraud in Connection with ABACUS Structuring and Marketing

    3.4. Climax: Dodd–Frank Affords the Securities and Exchange Commission Extraterritorial Jurisdiction

    3.5. Conclusion—Tourre and His Cohorts Celebrate a Pyrrhic Victory

    Chapter 4. Regulating Short Sales in the 21st Century

    4.1. Introduction

    4.2. U.S. Short Sale Regulation Background

    4.3. Current Securities and Exchange Commission Regulation of Short Selling Activity

    4.4. Conclusion

    Chapter 5. Evolution of Short Selling Regulations and Trading Practices

    5.1. Introduction

    5.2. Literature Review

    5.3. Historical Background on Short Selling

    5.4. Short Selling and Financial Crisis

    5.5. A Detailed Analysis of Short Selling in Recent Times

    5.6. Conclusion

    Chapter 6. Financing Techniques for Short Sellers

    6.1. Introduction

    6.2. Introducing the Repo Market for Fixed Income Securities

    6.3. Length of Trades

    6.4. Special Rate

    6.5. The Repo Market in Bankruptcy

    6.6. Haircuts and Margin Maintenance

    6.7. Financing Equity Short Positions

    6.8. In Lieu Payments and Other Rights

    6.9. Financing Currency Short Positions

    6.10. Financing Commodity Short Positions

    6.11. Trading in the Lending Markets

    6.12. Conclusion

    Chapter 7. A Survey of Short Selling in Canada

    7.1. Introduction

    7.2. Current Regulations

    7.3. Taxation of Short Sales

    7.4. Recent Trends in Canada

    7.5. Impact of Recent Short Sale Prohibition

    7.6. Conclusion

    Chapter 8. Are Restrictions on Short Selling Good? A Look at European Markets

    8.1. Introduction

    8.2. Short Selling Bans and Analysis of Market Reactions

    8.3. Committee of European Securities Regulators Initiative and Its Impacts on Professional Equity Investments

    8.4. Conclusion

    Chapter 9. Short Selling, Clearing, and Settlement in Europe

    9.1. Introduction

    9.2. Short Selling and Settlement Risk

    9.3. Settlement Discipline in Europe

    9.4. Relation between Short Selling Market Discipline and Settlement Discipline

    9.5. Impact of Short Selling and Fails on the Effectiveness of Settlement Discipline Measures

    9.6. Conclusion

    Chapter 10. The 2008 Emergency Regulation of Short Selling in the United Kingdom, United States, and Australia

    10.1. Introduction

    10.2. Objectives of Securities Regulation

    10.3. Analysis of Emergency Responses

    10.4. Types and Range of Initiatives

    10.5. Conclusion

    Chapter 11. Reflections on Short Selling Regulations in Western and Eastern Europe

    11.1. Introduction

    11.2. A Review of the National Regulatory Regimes in the European Union (EU)

    11.3. The Case of Eastern Europe

    11.4. The New European Commission's Draft Regulation

    11.5. Conclusion

    Chapter 12. Regulating Short Selling

    12.1. Introduction

    12.2. Theoretical Views of Short Selling Regulation

    12.3. European Regulations after the Lehman Brothers Collapse

    12.4. Regulatory Asymmetries and Arbitrage

    12.5. Conclusion

    Chapter 13. Do Option Prices Reveal Short Sale Restrictions Impact on Banks’ Stock Prices? The German Case*

    13.1. Introduction

    13.2. Literature Review

    13.3. Methodology

    13.4. Data

    13.5. Do Options Prices Reveal Short Sale Restrictions?

    13.6. Conclusion

    Chapter 14. Short Selling in France during the Crisis, the Bans, and What Has Changed since the Euro Correction

    14.1. Introduction

    14.2. Literature Review

    14.3. Regulatory Developments Concerning Short Selling in France

    14.4. Statistics

    14.5. Discussion

    Chapter 15. The Chinese Real Estate Bubble

    15.1. Introduction

    15.2. Comparison with the United States

    15.3. The Bubble in China

    15.4. The Debt Deflation Model—Does It Apply to China?

    15.5. The Stock Market—Forecasting the Bursting of the Bubble?

    15.6. Problems in Shorting Chinese Stocks

    15.7. Conclusion

    Chapter 16. Introduction of Margin Trading and Short Selling in China's Securities Market

    16.1. Introduction

    16.2. The Disordered Warrant Price in China's Securities Market

    16.3. Development of Margin Trading and Short Selling in China

    16.4. Introduction and Interpretation of China's Key Rules on Margin Trading and Short Selling

    16.5. Conclusion

    Chapter 17. Impact of Short Selling on China Stock Prices

    17.1. Introduction

    17.2. Literature Review

    17.3. Methodology

    17.4. Sample and Hypotheses

    17.5. Empirical Findings

    17.6. Conclusion

    Chapter 18. Short Selling the Real Estate Bubble in China

    18.1. Introduction

    18.2. Is There a Bubble in China's Real Estate Market?

    18.3. How to Short Sell the Real Estate Bubble

    18.4. Conclusion

    Chapter 19. Impact of Macroeconomic Indicators on Short Selling

    19.1. Introduction

    19.2. Data and Brief Overview of Japanese Macroeconomic Indicators

    19.3. Data and Methodology

    19.4. Conclusion

    Chapter 20. New Regulatory Developments for Short Selling in Asia

    20.1. Introduction

    20.2. Typical Short Selling Constraints

    20.3. Examples of a Few Asian Countries

    20.4. Recent Developments in China

    20.5. Conclusion

    Chapter 21. The Signaling of Short Selling Activity in Australia

    21.1. Introduction

    21.2. Literature Review

    21.3. Data and Methodology

    21.4. Findings

    21.5. Conclusion

    Chapter 22. Sourcing Securities for Short Sales

    22.1. Introduction

    22.2. Transactional Attributes of Securities Loans

    22.3. Securities Loans and Short Sales

    22.4. Securities Loans and Voting Rights

    22.5. Legal Characterization of Securities Loans

    22.6. Conclusion

    Chapter 23. Short Selling in Emerging Markets

    23.1. Introduction

    23.2. Short Selling in Emerging Markets: Main Characteristics

    23.3. Emerging Market Main Indicators

    23.4. Conclusion

    Chapter 24. Short Selling and the Problem of Market Maturity in Latin America

    24.1. Introduction

    24.2. Review of National Regulatory Regimes in Latin America

    24.3. Previous Studies on Short Selling in Latin America

    24.4. The Practice of Short Selling in Latin America

    24.5. Conclusion

    Chapter 25. Short Selling—The Ambrosia or Kryptonite of Emerging Markets?

    25.1. Introduction

    25.2. Emerging Market Benefits from Short Selling

    25.3. Risk of Short Selling to an Emerging Market

    25.4. Short Selling in BRIC Nations

    25.5. Short Selling in Other Key Areas

    25.6. Helpful Investor Mechanisms

    25.7. Conclusion

    Chapter 26. Short Selling Consistency in South Africa

    26.1. Introduction

    26.2. Johannesburg Stock Exchange and Financial Markets Regulation

    26.3. South African Markets prior to and during the Global Financial Crisis

    26.4. South African Short Selling Rules

    26.5. Conclusion

    Chapter 27. Short Selling in Russia

    27.1. Introduction

    27.2. Main Regulations and Practices

    27.3. Empirical Analysis: A Comparison of Asset Allocation Strategies

    27.4. Conclusion

    Chapter 28. Performance Persistence of Short-Biased Hedge Funds

    28.1. Introduction

    28.2. What are Short-Biased Hedge Funds?

    28.3. Past Performance of Short-Biased Hedge Funds

    28.4. Future Performance of Short-Biased Hedge Funds

    28.5. Asset Allocation and Short-Biased Hedge Funds

    28.6. Conclusion

    Chapter 29. An Empirical Analysis of Short-Biased Hedge Funds’ Risk-Adjusted Performance

    29.1. Introduction

    29.2. Literature Review

    29.3. Data Analysis

    29.4. Empirical Analysis: A Panel Approach

    29.5. Conclusion

    Chapter 30. Short Selling by Portfolio Managers

    30.1. Introduction

    30.2. Data Description

    30.3. Research Question/Hypothesis

    30.4. Methodology

    30.5. Results

    30.6. Conclusion

    Chapter 31. Short Selling in an Asset Allocation Framework—The Search for Alpha

    31.1. Introduction

    31.2. A Stylized Example

    31.3. Alpha Transportation in Practice

    31.4. An Illustrative Example

    31.5. Conclusion

    Chapter 32. Machine Learning and Short Positions in Stock Trading Strategies

    32.1. Introduction

    32.2. Literature Review

    32.3. Data and Methodology

    32.4. Empirical Results

    32.5. Conclusion

    Chapter 33. Short Selling Stock Indices on Signals from Implied Volatility Index Changes

    33.1. Introduction

    33.2. Literature Review

    33.3. Data and Methodology

    33.4. Results

    33.5. Conclusion

    Chapter 34. Short Selling and the Equity Premium Puzzle

    34.1. Introduction

    34.2. Theory

    34.3. Data

    34.4. Impact of Short Selling in a Heterogeneous Group of Investors

    34.5. Discussion

    34.6. Conclusion

    Chapter 35. Affine Term Structure Models and Short Selling

    35.1. Introduction

    35.2. Affine Term Structure Models

    35.3. Macroeconomic Shocks Affecting Government Surpluses Are Affine

    35.4. Some Evidence on Affine Term Structure Models

    35.5. Risks of Sovereign Debt Rollover

    35.6. How Multiple Equilibrium Works and How It Could Result in “Runs” on Government Issuances

    35.7. Prohibition in Naked Short Selling: A Poor Workaround with Little Effective Consequences

    35.8. Conclusion

    Chapter 36. Short Sale Constraints in the Equity Market and the Term Structure of Interest Rates

    36.1. Introduction

    36.2. Data and Method

    36.3. Main Findings

    36.4. Conclusion and Policy Implications

    Chapter 37. Short Selling Assessment Where Consumer Prices Involve Both Currency Trades and Weather Shocks

    37.1. Introduction

    37.2. Methodology

    37.3. Data and Empirical Application

    37.4. Conclusion

    Chapter 38. Aggregate Short Selling during Earnings Seasons

    38.1. Introduction

    38.2. Data and Methodology

    38.3. Empirical Results

    38.4. Conclusion

    Chapter 39. The Information Content of Short Selling before Macroeconomic Announcements

    39.1. Introduction

    39.2. Data Sources and Sample Details

    39.3. Measures and Methods

    39.4. Results

    39.5. Conclusion



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    About the Editor-in-Chief

    Greg Gregoriou

    A native of Montreal, Professor Greg N. Gregoriou obtained his joint Ph.D. in finance at the University of Quebec at Montreal which merges the resources of Montreal's four major universities McGill, Concordia, UQAM and HEC. Professor Gregoriou is Professor of Finance at State University of New York (Plattsburgh) and has taught a variety of finance courses such as Alternative Investments, International Finance, Money and Capital Markets, Portfolio Management, and Corporate Finance. He has also lectured at the University of Vermont, Universidad de Navarra and at the University of Quebec at Montreal. Professor Gregoriou has published 50 books, 65 refereed publications in peer-reviewed journals and 24 book chapters since his arrival at SUNY Plattsburgh in August 2003. Professor Gregoriou's books have been published by McGraw-Hill, John Wiley & Sons, Elsevier-Butterworth/Heinemann, Taylor and Francis/CRC Press, Palgrave-MacMillan and Risk Books. Four of his books have been translated into Chinese and Russian. His academic articles have appeared in well-known peer-reviewed journals such as the Review of Asset Pricing Studies, Journal of Portfolio Management, Journal of Futures Markets, European Journal of Operational Research, Annals of Operations Research, Computers and Operations Research, etc. Professor Gregoriou is the derivatives editor and editorial board member for the Journal of Asset Management as well as editorial board member for the Journal of Wealth Management, the Journal of Risk Management in Financial Institutions, Market Integrity, IEB International Journal of Finance, and the Brazilian Business Review. Professor Gregoriou's interests focus on hedge funds, funds of funds, commodity trading advisors, managed futures, venture capital and private equity. He has also been quoted several times in the New York Times, Barron's, the Financial Times of London, Le Temps (Geneva), Les Echos (Paris) and L'Observateur de Monaco. He has done consulting work for numerous clients and investment firms in Montreal. He is a part-time lecturer in finance at McGill University, an advisory member of the Markets and Services Research Centre at Edith Cowan University in Joondalup (Australia), a senior advisor to the Ferrell Asset Management Group in Singapore and a research associate with the University of Quebec at Montreal's CDP Capital Chair in Portfolio Management. He is on the advisory board of the Research Center for Operations and Productivity Management at the University of Science and Technology (Management School) in Hefei, Anhui, China.

    Affiliations and Expertise

    School of Business and Economics, State University of New York, Plattsburgh, NY, USA


    "The global financial crisis triggered a debate about pros and cons of trading practices such as short selling and required policy responses. This is precisely the theme of this work. It has been well chosen and exhaustively analyzed, making this book a mandatory reading for anybody with an interest or responsibilities in the microstructure of financial markets."

    --Marco Rossi, Senior Economist, International Monetary Fund


    "This book is a very timely and extremely useful guide to the subtle and often difficult issues involved in short selling - a subject that is more relevant than ever since the financial crisis. It is written by many experts and covers by its manyfold chapters all aspects of short selling from different international points of view. It will surely lead to many new insights."

    --Carsten S. Wehn, Head of Risk Modelling, DekaBank, Germany


    "Short selling so far has been an investment technique that was wildly misunderstood by politicians, academics and practitioners alike. This book with 39 chapters written by leading academics and practitioners represents the ultimate resource for everyone who wants to really understand the concept. The Handbook of Short Selling covers regulation and best practices in various countries, the effect of short-selling bans throughout the financial crisis, as well as the diversification benefits of the addition of short sellers to a traditional investment portfolio."

    --Dieter Kaiser, Director of Investment Management, Feri Institutional Advisors GmbH

    "Many people are discussing the role and the effects of short selling in the (current) financial crisis, but these experts contributing to the 'Handbook of Short Selling' really know what they are talking about. The Handbook is a must read for every participant in the capital markets."

    --Christian Hoppe, Commerzbank AG, Frankfurt am Main


     "Short-selling is a prevalent feature of modern financial markets which has become hotly and controversially debated. The 'Handbook of Short-Selling' couldn’t be more timely. It provides an accessible and comprehensive treatment of the subject. It is a valuable reference for anyone interested in understanding the role of short-selling in the financial crisis of 2007-2009."

    --José Manuel González-Páramo, Member of the Executive Board, European Central Bank