Naked Short Selling and the Market Impact of Fails-to-Deliver: Evidence from the Trading of Real Estate Investment Trusts
- 379 Downloads
Naked short selling and purposeful fails-to-deliver have been identified in the popular press and by the SEC as contributing factors to the stock market decline in 2008. We investigate the market impact of the announcement that fails-to-deliver have occurred for a sample of real estate investment trusts (REITs). We find little evidence that this announcement affects returns or has any market manipulation ability. We find that fails-to-deliver are most consistent with a 1 to 3 days delivery difference between the short sale and offsetting covering trades. These results hold independent of the type of REIT (equity or mortgage REITs). Overall, our findings suggest that naked short selling and purposeful fails-to-deliver may not have contributed much to REIT losses during the financial crisis.
KeywordsShort Selling Fails-to-deliver Financial Crisis Regulation REITs
JEL codesG01 G12 G14 G18
We thank Tim McCormick, Piet Eichholtz (editor), Steven Jones, Jim Schneringer, Ting Foo Sing, an anonymous referee, and seminar participants at 2010 FMA, 2012 NUS-MIT-Maastricht Real Estate Symposium, and the University of Texas at El Paso for helpful comments. Jagadish Dandu provided help in data collection. We thank Ken French for data on industry returns. We retain responsibility for any remaining errors.
- Autore, D., Boulton, T., & Braga-Alves, M. (2011). Failures-to-Deliver, Short Sale Constraints, and Stock Overvaluation. Working Paper: Florida State University.Google Scholar
- Devos, E., S. Ong, A. Spieler and D. Tsang. (2012). REIT institutional ownership dynamics and the financial crisis. Journal of Real Estate Finance and Economics, forthcomingxGoogle Scholar
- Diether, K. (2008). Short Selling, Timing, and Profitability. Working Paper. Ohio State UniversityGoogle Scholar
- Fleming, M., & Garbade, K. (2002). When the Back Office Moved to the Front Burner: Settlement Fails in the Treasury Markets after 9/11. Federal Reserve Bank of New York Economic Policy Review, 8, 35–57.Google Scholar
- Johnson, O. (1998). The payment system and monetary policy. International Monetary Fund Papers on Policy Analysis and Assessment, 94(4).Google Scholar
- Kolasinksi, A., A. Reed and J. Thornock. (2009). Prohibitions versus constraints: The 2008 short sales regulation. Working Paper. University of North Carolina at Chapel Hill.Google Scholar
- Li, D., & Yung, K. (2004). Short interests in real estate investment trusts. International Real Estate Review, 7, 56–70.Google Scholar