AN EMPIRICAL EXAMINATION OF THE RELATIONSHIP BETWEEN NAKED SHORTING AND SHARE PRICES AROUND THE ANNOUNCEMENT OF A FIRM’S NEED FOR EXTERNAL CAPITAL

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Austin Murphy, Hong Qian, Yun Zhu, Ranadeb Chaudhuri

DOI:10.22495/jgr_v1_i4_c1_p3

Abstract

This research finds some empirical evidence that the sale of stock without delivering shares can contribute to pressuring down the equity prices of companies seeking to raise capital. By allowing for the delayed effects on prices of limit orders by naked shorts, a significant negative impact on equity value per share is discovered but only for naked short selling by market makers and only on stocks of firms in urgent need of external financing.

Keywords: Naked Shorting, Short Sales, New Issue, Dilution, Value

How to cite this paper: Murphy, A., Qian, H., Zhu, Y., & Chaudhuri, R. (2012). An empirical examination of the relationship between naked shorting and share prices around the announcement of a firm’s need for external capital. Journal of Governance and Regulation, 1(4-1), 139-164. http://doi.org/10.22495/jgr_v1_i4_c1_p3