Regulators May Hurt Investors By Limiting Short-Selling, New Research Finds

Date Added: Jul 2009
Format: PDF

In the short run, the stock market is a voting machine, but in the long run, it's a weighing machine. Put differently, over the course of days, even weeks, the market measures popularity, but given enough time, it accurately assesses any stock's value. Without short selling, a stock's price doesn't promptly reflect all the pertinent information about the company that issued it, Reed's recent research has found. And if short selling is limited, price adjustments, especially negative ones, will be more extreme when they do happen, like when critical details do emerge.