We thank Cheol Eun (reviewer) and Jayant Kale (editor) for their helpful comments and constructive suggestions. We thank David Stowe for providing excellent research assistance. (Grace) Qing Hao gratefully acknowledges financial support from the Robert J. Trulaske, Sr. College of Business at the University of Missouri.
SHORT SELLING AND PRICE DISCOVERY: EVIDENCE FROM AMERICAN DEPOSITARY RECEIPTS
Article first published online: 2 DEC 2011
© 2011 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 34, Issue 4, pages 569–588, Winter 2011
How to Cite
Brockman, P. and Hao, Q. (2011), SHORT SELLING AND PRICE DISCOVERY: EVIDENCE FROM AMERICAN DEPOSITARY RECEIPTS. Journal of Financial Research, 34: 569–588. doi: 10.1111/j.1475-6803.2011.01302.x
- Issue published online: 2 DEC 2011
- Article first published online: 2 DEC 2011
The underlying shares of some American Depositary Receipts (ADRs) can be short sold in their home markets, and others cannot. This institutional feature offers a unique opportunity to investigate the relation between short selling and price discovery. We hypothesize and confirm that ADR short selling on a U.S. exchange is more informative when the ADRs’ underlying shares cannot be short sold in the home market. These and related results suggest that short sellers make a significant contribution to price discovery. Short sellers’ trading activity, representing more than 20% of total ADR share volume, increases the benefits of cross-listing on U.S. exchanges.