Short sale constraints and single stock futures introductions
What is it about?
This paper shows that futures markets relax short sale constraints facing investors and reduce the degree overpricing characterizing their underlying asset. This study uses the experimental setting created by the introduction of close to 1,300 single stock futures contract on the OneChicago exchange over a sample period spanning close to a decade.
Why is it important?
This study is important because it is the first one of its kind assessing the impact of derivative markets on short sale constraints facing their underlying asset while controlling explicitly for supply and demand conditions in the lending market for the underlying asset, thanks to a proprietary dataset, rather than relying on crude proxies for short sale constraints.
The following have contributed to this page: Louis Gagnon
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