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Article

Short Selling during Extreme Market Movements

Benjamin M Blau, Bonnie F. Van Ness, Robert A. Van Ness and Robert A. Wood
The Journal of Trading Fall 2010, 5 (4) 14-27; DOI: https://doi.org/10.3905/jot.2010.5.4.014
Benjamin M Blau
is an assistant professor of finance at Utah State University in Logan, UT.
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  • For correspondence: ben.blau@usu.edu
Bonnie F. Van Ness
is a professor of finance at the University of Mississippi in University, MS.
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  • For correspondence: bvanness@bus.olemiss.edu
Robert A. Van Ness
is a professor of finance at the University of Mississippi in University, MS.
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  • For correspondence: rvannness@bus.olemiss.edu
Robert A. Wood
is a professor of finance at the University of Memphis in Memphis, TN.
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  • For correspondence: rawood@pobox.com
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Abstract

This study examines the short selling of NYSE stocks contained in the S&P 500 on days with extreme increases (up days) and extreme decreases (down days) in the index. Although Diether, Lee, and Werner [2009] showed, using contemporaneous returns of individual stocks, that short sellers are generally contrarian, Blau, Van Ness, Van Ness, and Wood find that short selling in stocks increases (decreases) on large down (up) days for the S&P, which suggests that during extreme market movements short sellers tend to follow the crowd. Further, the authors’ results show that short sellers do not anticipate down days, indicating that these event days are largely unforeseen. When examining the return predictability of short sellers on event days, the authors observe that short sellers on up days are significantly better at predicting negative next-day returns than short sellers on down days, suggesting that market-induced contrarian short selling is more profitable than momentum short selling.

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The Journal of Trading: 5 (4)
The Journal of Trading
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Fall 2010
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Short Selling during Extreme Market Movements
Benjamin M Blau, Bonnie F. Van Ness, Robert A. Van Ness, Robert A. Wood
The Journal of Trading Sep 2010, 5 (4) 14-27; DOI: 10.3905/jot.2010.5.4.014

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Short Selling during Extreme Market Movements
Benjamin M Blau, Bonnie F. Van Ness, Robert A. Van Ness, Robert A. Wood
The Journal of Trading Sep 2010, 5 (4) 14-27; DOI: 10.3905/jot.2010.5.4.014
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