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Publicizing Arbitrage

Published online by Cambridge University Press:  09 March 2020

Bige Kahraman Open the ORCID record for Bige Kahraman [Opens in a new window]
Bige Kahraman*
Affiliation:
Kahraman, bige.kahraman@sbs.ox.ac.uk, University of Oxford Said Business School
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Abstract

How does greater public disclosure of arbitrage activity and informed trading affect price efficiency? To answer this, we exploit rule amendments in U.S. securities markets, which impose a higher frequency of public disclosure of short positions. Higher public disclosure can hurt the production of information and deteriorate efficiency, or it can be beneficial by mitigating the limits to arbitrage and diffusing arbitrageurs’ information faster. With more frequent disclosure, information encapsulated within short interest is incorporated into prices faster, improving price efficiency. We find important reductions in short sellers’ horizon risk and increases in short sales with the rule amendments.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 3 , May 2021 , pp. 789 - 820
Copyright
© Michael G. Foster School of Business, University of Washington 2020

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Footnotes

*

I thank Nick Barberis, Hendrik Bessembinder (the editor), Thierry Foucault, William Goetzmann, Charles Jones, Roni Michaely, Dmitriy Muravyev, Tarun Ramadorai, Heather Tookes, Raman Uppal, and William Waller (the referee) and seminar participants at the 2018 American Finance Association (AFA) Meeting, the 2017 Rodney White Center Conference at Wharton, the 2018 4-Nations Cup, the 2017 Center for Economic and Policy Research (CEPR) Annual Spring Symposium in Financial Economics, the 2014 Financial Intermediation Research Society, the 2014 European Summer Symposium, the 2013 Midwest Finance Association (MFA), Tilburg University, Stockholm School of Economics, the University of Oxford, the University of Amsterdam, Nova School of Business, Bilkent University, the University of Cambridge, Durham Business School, Birmingham Business School, Lancaster University Management School, the U.S. Securities and Exchange Commission, Moody’s Analytics, and the Office of the Comptroller of the Currency. An earlier version of this article circulated with the title “Show Us Your Shorts!” All errors are my own.

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