Tuesday, 19 May 2009

Shorting again

Just a couple of pointers to more commentary on shorting. The IMA's response to the FSA consultation, and an EDHEC paper on the impact of bans (you'll need to register to get this one, it's the third paper down in this list).

Let's be absolutely clear about this - the overwhelming consensus of opinion is that shorting bans are ineffective (if not actively damaging to financial markets). There is actually a stack of academic evidence that such opinions are based upon. Much as I am sceptical about the benefits of shorting, I really don't see any compelling case against it (except the more general point about trading costs). In short (ho hum) I don't think it is really something lefties need to worry about, unless part of a wider push to reduce stock turnover.


Nick Drew said...

laudably open-minded + empirical of you, Tom !

Tom P said...

I've found reading more about shorting really quite interesting. But it has inevitably led me to the conclusion 'move along, nothing to see here'.

zedman said...

Nice analogy Tom - reminds me:
The scene: Hedge fund trader is walking down the high street and passes by a cinema.

Scenario 1 - he(or she) walks in and tells the manager "if you don't pay me some money, I'll tell everyone the cinema is a firetrap" - This is naked shorting.
Scenario 2 - he sees a fire in the cinema, rushes in and tells everyone to get out because there's a fire. This is shorting.
Scenario 3 - he sees a fire, tries to get in to tell everyone, but the police stop him from going in. "Move along, nothing to see here". Short selling restriction.