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Role of Speculative Short Sales in Price Formation: The Case of the Weekend Effect
Author(s) -
Chen Honghui,
Singal Vijay
Publication year - 2003
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00541
Subject(s) - stock (firearms) , monetary economics , weekend effect , short interest ratio , initial public offering , stock price , names of the days of the week , affect (linguistics) , business , economics , financial economics , geography , medicine , emergency medicine , paleontology , linguistics , context (archaeology) , philosophy , archaeology , series (stratigraphy) , biology
We argue that short sellers affect prices in a significant and systematic manner. In particular, we contend that speculative short sales contribute to the weekend effect: The inability to trade over the weekend is likely to cause these short sellers to close their speculative positions on Fridays and reestablish new short positions on Mondays causing stock prices to rise on Fridays and fall on Mondays. We find evidence in support of this hypothesis based on a comparison of high short‐interest stocks and low short‐interest stocks, stocks with and without actively traded options, IPOs, zero short‐interest stocks, and highly volatile stocks.