FINC314 Lecture Notes - Lecture 2: Goldman Sachs, Data Explorers, Justice Of The Peace
29 Aug 2016
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Document Summary
Firms use a variety of methods to impede short selling legal threats, investigations, lawsuits. Short sale constraints allow stocks to be overpriced. And thus have low future returns until the overpricing is corrected. Short selling can be expensive, difficult, and risky. Stocks w high short sale constraints have low future returns. Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security"s price will decline, enabling it to be bought back at a lower price to make a profit. Shorting facebook is a pricey proposition, for now. Short sellers looking to pounce on facebook"s disappointing debut in the public markets will have to pay a hefty premium. 4% of the free float of shares on the open market. The limited supply of facebook shares on loan has been coupled with high demand, driving the price to short facebook even higher.
