SHORT SELLING AND PRICE DISCOVERY: EVIDENCE FROM AMERICAN DEPOSITARY RECEIPTS | Zendy

Brockman Paul | Zendy; Hao Grace Qing | Zendy

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SHORT SELLING AND PRICE DISCOVERY: EVIDENCE FROM AMERICAN DEPOSITARY RECEIPTS

Author(s) -

Brockman Paul,

Hao Grace Qing

Publication year - 2011

Publication title -

journal of financial research

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.319

H-Index - 49

eISSN - 1475-6803

pISSN - 0270-2592

DOI - 10.1111/j.1475-6803.2011.01302.x

Subject(s) - price discovery , listing (finance) , cross listing , home market , business , monetary economics , commerce , financial economics , economics , finance , market economy , corporate governance , futures contract

The underlying shares of some American Depositary Receipts (ADRs) can be short sold in their home markets, and others cannot. This institutional feature offers a unique opportunity to investigate the relation between short selling and price discovery. We hypothesize and confirm that ADR short selling on a U.S. exchange is more informative when the ADRs’ underlying shares cannot be short sold in the home market. These and related results suggest that short sellers make a significant contribution to price discovery. Short sellers’ trading activity, representing more than 20% of total ADR share volume, increases the benefits of cross‐listing on U.S. exchanges.

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