Question A:
Allowing short selling of financial securities, such as stocks and government bonds, leads to prices that, on average, are closer to their fundamental values.
Responses
Responses weighted by each expert's confidence
Question B:
When short sellers start to establish substantial short positions in a stock, the stock is likely to have been overvalued.
Responses
Responses weighted by each expert's confidence
Question C:
Requiring investors to disclose short positions in a stock at the equivalent threshold as they are required to do for long positions would improve the informativeness of stock prices.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
 John Campbell |
Harvard | Bio/Vote History | ||
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If short selling is impossible or expensive, prices are set by the most optimistic investors and tend to exceed fundamental value at times of strong disagreement.
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Some of the most convincing evidence of "overpricing" occurs when short sales are impeded.
-see background information here -see background information here |
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 Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
 Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Allowing short sales allows those who believe that a security is overvalued to reduce their he price. Because this is somewhat costly and difficult, only those with quite negative information will chose to short based on information.
-see background information here |
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 Wenxin Du |
Columbia | Bio/Vote History | ||
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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When each investor's demand function is constrained below at zero, the total demand function is shifted upward, which moves the clearing about its "fundamental" price, which is the efficient market price with no such constraint.
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 Janice Eberly |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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 Xavier Gabaix |
Harvard | Bio/Vote History | ||
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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Banning short selling reduces liquidity and as well as price discovery as a segment of the market (those that believe the price is above fundamental value) are excluded from the market.
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 David Hirshleifer |
USC | Bio/Vote History | ||
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 Harrison Hong |
Columbia | Bio/Vote History | ||
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 Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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 Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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While it is possible that enhanced speculative activity might cause distortions (especially in the short run and during a crisis), overall the first order effect is to get closer to fundamentals on average
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 Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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Allowing investors to express negative information through shorting makes prices more efficient. Restrictiions on trading (buys or sells) do the opposite.
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Markets aggregate information and opinions when all investors can freely trade. Costs to shorting individual stocks implies that negative information or opinions have less impact on prices that positive information.
-see background information here |
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 Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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 Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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Short sellers add liquidity and help bring their prices closer to their true value.
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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 Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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Although there may be occasional exceptions (e.g., meme stocks), short-selling is usually an important mechanism for market equilibrium.
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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 Amir Sufi |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Short sales are essential for negative information to be expressed and impounded into prices. It is an essential mechanism for overpricing to be corrected.
-see background information here |
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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John Campbell |
Harvard | Bio/Vote History | ||
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Short sellers are typically among the more informed and sophisticated investors in the market, and their positions reflect reasonable (although not perfect) forecasts of future returns given prices at the time they establish their shorts.
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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When stocks are overvalued, shorts try to pile in, though they often can't (which is why the stock got overvalued). Shorts sometimes pile in for other reasons. -- wide dispersion of opinion, lots of uncertainty. Badly worded question.
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Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Wenxin Du |
Columbia | Bio/Vote History | ||
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Maybe, instead, it had been "correctly" valued based on prior market conditions, and then a big new divergence in investor information caused big differences beliefs, causing a lot of shorting by pessimists and a new "correct" price that reflects the new cross-section of beliefs.
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Janice Eberly |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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The short seller believes the stock is overvalued. As for whether this is true on average, many hedge funds use some version of short-interest as a signal.
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Bio/Vote History | ||
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Not guaranteed and even if they are right it can take time to resolve, but often they are on to something.
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Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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This variation, especially at high frequency might be more about speculation. So much would depend on the frequency
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Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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On average yes it is likely to be overvalued, but doesn’t have to be.
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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See the evidence in the paper "Go Down Fighting: Short Sellers vs. Firms" by Owen Lamont in RAPS in 2012.
-see background information here |
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Data show lower average returns for more heavily shorted stocks, but note that the better measure is the fee associated with shorting, which reflects both the demand to short and the supply of stock that can be borrowed.
-see background information here |
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Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Amir Sufi |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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short sellers seek to maximize profit by exploiting overvalued stocks. They often do so by conducting research and convincing other investors of that research.
-see background information here |
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question C Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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John Campbell |
Harvard | Bio/Vote History | ||
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If the disclosure rule reduces short-selling activity, it could have a perverse effect. The long-side rule is related to the possibility of a transfer of corporate control, which does not apply on the short side.
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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The possibility of short squeezes makes this a bit uncertain.
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Wenxin Du |
Columbia | Bio/Vote History | ||
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Probably this is a good proposal, from an overall policy perspective. But will it make prices more informative, given that it may discourage informed pessimists from aggressively building short positions? Pete Kyle might say No. Anyway, I am uncertain.
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Janice Eberly |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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It makes no sense to me that asset managers only have to reveal large long positions but not large short positions. Data on large short positions would be important information for traders.
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Bio/Vote History | ||
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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If disclosure requirements become too high, market participants are likely to employ other derivative instruments that have lower disclosure requirements
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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I think the shorts should be disclosed as much as the long positions
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Gregor Matvos |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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More information transparency is helpful.
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Short interest is already disclosed aggregated at the stock level, and some short sellers widely broadcast when they have taken positions, so it's not clear whether there would be a further measurable gain in informativeness from disclosing investors' disaggregated positions.
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Ideally disclosure requirements would apply symmetrically to deviations from the stock's share in the market portfolio. But symmetry relative to zero is probably reasonably close to optimal.
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Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Northwestern Kellogg | Bio/Vote History | ||
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I do not see a strong argument why short positions should be treated differently from a disclosure point of view.
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Amir Sufi |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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the mechanism through which short sellers affect prices can be made more effective with increased transparency and disclosure. It could also help reduce potential market manipulation.
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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