Market Migration: Informed Short Sales and Option Introductions

28 Pages Posted: 8 Apr 2010

See all articles by Benjamin M. Blau

Benjamin M. Blau

Utah State University - Huntsman School of Business

Date Written: April 7, 2010

Abstract

This study tests the hypothesis that informed shorting activity decreases in the stock market when options become available because informed traders migrate from the stock market to the options market after options are introduced. To the contrary, we do not find that shorting activity decreases. Instead shorting activity increases after options list. Furthermore, we show that the common negative relation between current short selling and future returns becomes stronger after options are introduced. This result appears to be driven by stocks that are most likely to face binding short-sale constraints. Contrary to the idea that informed traders migrate to the options market, findings in this paper indicate that informed short selling increases after options become available.

Keywords: short selling, Information, Market Migration

Suggested Citation

Blau, Benjamin M., Market Migration: Informed Short Sales and Option Introductions (April 7, 2010). Available at SSRN: https://ssrn.com/abstract=1586035 or http://dx.doi.org/10.2139/ssrn.1586035

Benjamin M. Blau (Contact Author)

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322
United States

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