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Time‐Varying Aggregate Short‐Selling in Korea
Author(s) -
Lee KuanHui,
Wang ShuFeng
Publication year - 2019
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12273
Subject(s) - contrarian , monetary economics , stock market , financial economics , business , stock (firearms) , economics , econometrics , mechanical engineering , paleontology , horse , engineering , biology
This study examines the variation in aggregate short‐selling by foreigners, individuals, and institutional investors in relation to market return and other market‐wide variables in the Korean stock market. First, we find that aggregate short‐selling has strong seasonal components. In contrast to the existing literature, which shows contrarian‐style short‐selling at the stock level, we find momentum‐style short‐selling by foreigners and individual investors at the aggregate level. That is, they significantly increase their short‐selling following a short‐term down market. In addition, we show that past US market return is negatively related to aggregate short‐selling by foreign investors. Vector‐autoregression and impulse‐response analyses reveal that aggregate short‐selling is significantly affected by changes in market return, but not vice versa.