Informed Trading with a Short-Sale Prohibition

<jats:p> Using a rational expectations equilibrium framework, I evaluate the effects of a short-sale prohibition in an economy with asymmetrically informed investors who are identical except for their information sets. Relative to an economy in which short selling is permitted, the financial market is less informationally efficient under a short-sale ban even when the ban is not binding. This alters the risk-sharing environment and leads to an increase in information acquisition. Additionally, a short-sale prohibition increases market depth. Imposing a cost on short selling instead of a strict prohibition yields similar results. Novel empirical implications are identified. /jats:p<jats:p> This paper was accepted by Karl Diether, finance. /jats:p

The final published version can be found at https://doi.org/10.1287/mnsc.2019.3501

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Work Title Informed Trading with a Short-Sale Prohibition
Access
Open Access
Creators
  1. Stephen L. Lenkey
License In Copyright (Rights Reserved)
Work Type Article
Publisher
  1. Institute for Operations Research and the Management Sciences (INFORMS)
Publication Date March 2021
Publisher Identifier (DOI)
  1. 10.1287/mnsc.2019.3501
Source
  1. Management Science
Deposited May 27, 2022

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