Efficiency and the Bear: Short Sales and Markets Around the World





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    • Bris is from IMD, Goetzmann is from Yale School of Management, and Zhu is from the University of California at Davis. We thank Gerard Goetz, Xi Luo, and Carolina Velosa for excellent research assistance, and Frank Fabozzi and Gustavo Rodríguez (NYSE) for considerable help in obtaining the data. We are grateful to seminar audiences at the University of Alberta, London Business School, Rutgers, Cornell's Johnson School, Emory University, University of Virginia-Darden, University of Illinois at Urbana-Champaign, the Tenth Annual Fortis/Georgia Tech International Finance Conference, the 2004 Advisory Board Conference at Boston College, the 14th Financial Economics and Accounting Conference at Indiana University, the College of William and Mary Frank Batten Young Scholar Conference, the 2003 EFA Meetings in Glasgow, the 2004 AFA Meetings in San Diego, and especially to Alex Butler, John Y. Campbell, Charles Jones, Frank de Jong, Owen Lamont, Christian Lundblad, Moshe Benhorin, Bernard Yeung, an anonymous referee, and Robert Stambaugh (the editor) for helpful comments and suggestions.


We analyze cross-sectional and time-series information from 46 equity markets around the world to consider whether short sales restrictions affect the efficiency of the market and the distributional characteristics of returns to individual stocks and market indices. We find some evidence that prices incorporate negative information faster in countries where short sales are allowed and practiced. A common conjecture by regulators is that short sales restrictions can reduce the relative severity of a market panic. We find strong evidence that in markets where short selling is either prohibited or not practiced, market returns display significantly less negative skewness.