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Strategic short selling around index additions: Evidence from the Nikkei 225
Author(s) -
Shiomi Naoya,
Takahashi Hidetomo,
Xu Peng
Publication year - 2021
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12303
Subject(s) - exploit , index (typography) , market liquidity , business , commerce , finance , computer science , computer security , world wide web
Focusing on index additions, which provoke buying pressure by large investors, we analyze the trading activities of short sellers around these events. Using daily short‐selling data from Japan, we find that short sellers exploit profitable opportunities through their liquidity provision activities. Short sellers earn profits by selling short right before the effective date of index additions and buying back after the effective date. The results suggest that short sellers exploit profitable opportunities due to anticipated buying pressure.