Arbitrage Involvement and Security Prices

• 成果类型: Article
• 署名作者: Hwang, Byoung-Hyoun; Liu, Baixiao; Xu, Wei
• 署名单位: Cornell University; Korea University; State University System of Florida; Florida State University; Peking University; Peking University Shenzhen Graduate School (PKU Shenzhen)
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2017.2912
• 发表日期: 2019
• 页码: 2858-2875
• 关键词: HEDGE FUNDS; Short selling; market efficiency

摘要

We propose that hedge funds more aggressively buy underpriced stocks when they are allowed to short. To test our proposition, we utilize the institutional feature in Hong Kong in virtue of which only stocks added to a special list can be shorted. Our first-stage analysis uses hedge fund holdings data and provides evidence that the emergency of shortable securities, indeed, causes hedge funds to more aggressively buy seemingly underpriced stocks. Our second-stage analysis presents evidence that hedge funds' increased involvement in these stocks helps correct underpricing and moves prices in the direction of fundamentals.