Journal article

Which financial stocks did short sellers target in the subprime crisis?

Iftekhar Hasan, Nadia Massoud, Anthony Saunders, Keke Song

JOURNAL OF BANKING & FINANCE | ELSEVIER SCIENCE BV | Published : 2015

Abstract

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies' risk exposure in the subprime crisis. Evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms' stocks was not significantly greater than that of non-financial firms after we match them on firm size and insolvency risk. When the short ban was in effect, the market quality of financial stocks without subprime assets exposure had deteriorated to a larger degree than that of financial companies with subpri..

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Grants

Funding Acknowledgements

We would like to thank two anonymous reviewers for helpful comments. We are also thankful, to Frank Heathway, Chief Economist at NASDAQ OMX, for providing the proprietary daily short selling data for the period post REGSHO; to Marldt for providing the CDS Database. Massoud would like to acknowledge funding from Schulich School of Business, York University and to acknowledge financial support from the Social Sciences and Humanities Research Council (SSHRC) of Canada.