Short Selling and Intraday Price Pressures

Authors

  • Andriy Shkilko,

    1. Andriy Shkilko is an Assistant Professor in the School of Business and Economics at Wilfrid Laurier University, Waterloo, Ontario, Canada. Bonnie Van Ness is a Professor in the School of Business Administration at the University of Mississippi, University, MS. Robert Van Ness is a Professor in the School of Business Administration at the University of Mississippi, University, MS.
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  • Bonnie Van Ness,

    1. Andriy Shkilko is an Assistant Professor in the School of Business and Economics at Wilfrid Laurier University, Waterloo, Ontario, Canada. Bonnie Van Ness is a Professor in the School of Business Administration at the University of Mississippi, University, MS. Robert Van Ness is a Professor in the School of Business Administration at the University of Mississippi, University, MS.
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  • Robert Van Ness

    1. Andriy Shkilko is an Assistant Professor in the School of Business and Economics at Wilfrid Laurier University, Waterloo, Ontario, Canada. Bonnie Van Ness is a Professor in the School of Business Administration at the University of Mississippi, University, MS. Robert Van Ness is a Professor in the School of Business Administration at the University of Mississippi, University, MS.
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  • The study greatly benefited from comments of two anonymous referees, Brad Barber, Hank Bessembinder, Ben Blau, Marcus Brunnermeier, Bill Christie (Editor), Ken Cyree, Kathleen Fuller, Lisa Kramer, Mark Lipson, Fabricio Perez, Robert Schwartz, Bill Shughart, Richard Warr, Adam Yore, and seminar/session participants at the 2009 Napa Conference on Financial Markets Research, 2008 American Finance Association Annual Meeting, 2007 RS-DeGroote Conference on Market Structure and Market Integrity, 2007 Northern Finance Association Annual Meeting, 2007 Financial Management Association Annual Meeting, 2006 FMA Doctoral Student Consortium, The Bank of Canada, Florida International University, Louisiana State University, the University of Memphis, the University of Mississippi, Mississippi State University, and Wilfrid Laurier University. Shkilko would like to acknowledge financial support from The NASDAQ Educational Foundation and the Social Sciences and Humanities Research Council of Canada (SSHRC). All remaining errors are our responsibility.

Abstract

We study episodes of significant intraday downward price pressures in individual stocks and find that price declines during such episodes are driven mainly by liquidity demanding nonshort volume. Although short sellers during these price pressure episodes are also active and somewhat exacerbate the magnitude of price declines, their influence on prices is secondary to that of nonshort sellers. As such, our findings are inconsistent with the recently reignited allegations of systematic trading abuses caused solely by short sellers and might shed light on the debate regarding the need to reinstitute short selling restrictions.

Ancillary