Short selling activity, price efficiency and fundamental value of IPO stocks

Document Type

Article

Publication Date

11-1-2012

Abstract

In this study, we take advantage of the unique features of the Taiwan stock market, where short selling is forbidden within the first six months following an IPO. We examine the effects of short selling on IPO price efficiency and the relation between short selling activities and the fundamental value of IPO stocks. We find that price efficiency is improved with increased short selling after the lifting of short sale constraints on IPO stocks. We also show that short sellers tend to target IPO stocks with low fundamental ratios, but simultaneously avoid stocks with high transaction costs. In addition, we provide empirical evidence that short sellers focus more on temporary price fluctuations rather than temporary fluctuations in fundamentals. © 2012 Elsevier B.V.

Identifier

84861011288 (Scopus)

Publication Title

Pacific Basin Finance Journal

External Full Text Location

https://doi.org/10.1016/j.pacfin.2012.04.001

ISSN

0927538X

First Page

809

Last Page

824

Issue

5

Volume

20

Grant

NSF HRD‐1008549

Fund Ref

Nanjing Institute of Technology

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