Open AccessAnalyst Downgrades, Short Sale Constraints, And Intra-Day Stock Price Efficiency
Author(s) -
Kevin Zhao
Publication year - 2015
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v31i4.9322
Subject(s) - stock (firearms) , stock price , cost price , business , monetary economics , economics , finance , mechanical engineering , paleontology , series (stratigraphy) , engineering , biology
This paper studies the impact of short sale constraints on stock price efficiency upon arrival of analyst downgrades. Examining the speed of which stock price response to analyst downgrades for pilot (short sale non-constrained) stocks and control (short sale constrained) stocks in an intra-day setting, I find evidence supporting the hypothesis that short sale constrains hamper intra-day stock price efficiency. For after-hours downgrades, pilot stocks respond quickly, with virtually all of the price response incorporated by the following open, while control stocks take an extra five minutes after opening to fully reflect the new information. For during-hour downgrades, the negative information is partially incorporated into pilot stock prices up to two hours before the recommendation is released, while control stocks take up to an hour and a half after the release to impound the information into stock price, confirming that short sale constraints lower stock price efficiency.