Predatory Short-selling and Self-fullling Crises
نویسندگان
چکیده
This paper investigates the mechanism through which short-selling can cause failures of nancial rms and state nancing. We show that the fundamental problem of short-selling is that it leads to an increase in uncertainty and information asymmetry on the rms or the sovereigns fundamentals. Debtholders, who care about downside risk but not upside risk, are averse to fundamental uncertainty. They may thus run, making default and failure self-ful lling, while speculators pro t from the failure. The paper suggests that naked short-selling can fuel a crisis and should be banned at times of market turbulence. Our work also contributes to the theoretical literature on global games by developing a model that simultaneously endogenizes strategic complementarities, information structure and payo¤ structure. I am grateful to Enrico Bi¢ s, Sheng Li, Filippos Papakonstantinou, Hyun Song Shin, Tianxi Wang, Xiaohui Wu and seminar participants at Imperial College Business School for comments on earlier versions of this paper. Contact: [email protected].
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تاریخ انتشار 2010