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Fails-to-deliver, short selling, and market quality
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Fotak, Veljko , Raman, Vikas and Yadav, Pradeep K. (2012) Fails-to-deliver, short selling, and market quality. Working Paper. Coventry, UK: University of Warwick. WBS Working Paper . (Unpublished)
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Text (Working paper)
WRAP_Raman_1173295-wbs-100713-nss_jfe_2011_784_resubmission_20121224_revised_manuscript.pdf - Other Download (1625Kb) | Preview |
Abstract
We investigate the collective net impact on market liquidity and pricing efficiency of equity trades that result in fails to deliver (“FTDs”). Given the nature of the US electronic trade settlement system for stocks, such “FTD
trades” should originate almost exclusively from short sales, and we confirm this empirically on the basis of a
natural experiment arising from a regulatory event. For a sample of 1,492 NYSE common stocks over a 42-month period from 2005 to 2008, we find that such trades lead to the same beneficial impact on liquidity and pricing efficiency as short sales that result in timely delivery. We do not find evidence that such trades are causally related to subsequent price declines or distortions, or to the failure of financial firms during the 2008 financial crisis.
| Item Type: | Working or Discussion Paper (Working Paper) | ||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Stock exchanges , Trade regulation, Price regulation, Credit , Economics -- Mathematical models, Global Financial Crisis, 2008-2009 , Liquidity (Economics) | ||||
| Series Name: | WBS Working Paper | ||||
| Publisher: | University of Warwick | ||||
| Place of Publication: | Coventry, UK | ||||
| Official Date: | 24 December 2012 | ||||
| Dates: |
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| Institution: | University of Warwick | ||||
| Status: | Not Peer Reviewed | ||||
| Publication Status: | Unpublished | ||||
| Access rights to Published version: | Open Access |
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