Common short selling and excess comovement: Evidence from a sample of LSE stocks (With J.Y. Gnabo and D. Veredas)
Journal of Financial Markets, in press, 2023.
For a sample of 356 LSE stocks from the period 2013–2019, we find that common short sold capital is positively and significantly associated with one-month ahead four-factor residual return correlation, controlling for many pair characteristics, including similarities in size, book-to-market, and momentum. The relation weakens with stock illiquidity, whereas it strengthens when short positions originate from informed agents, such as hedge funds, active investors, and short sellers with high past performance. This supports our hypothesis that the relation is driven by information, not price pressure. We show that these results can be used to obtain diversification benefits.
- Internet Appendix
Journal of Financial and Quantitative Analysis, June 2018, Vol. 53, 1371–1390.
We propose a market-based framework that exploits time-varying parameter vector autoregressions to estimate the dynamic network of financial spillover effects. We apply it to financials in the Standard & Poor's 500 index and estimate interconnectedness at the sector and institution level. At the sector level, we uncover two main events in terms of interconnectedness: the Long Term Capital Management crisis and the 2008 financial crisis. After these crisis events, we find a gradual decrease in interconnectedness, not observable using the classical rolling window approach. At the institution level, our framework delivers more stable interconnectedness rankings over time than other market-based measures of systemic risk.
- selected for the "Best Paper Session" at the Royal Economic Society PhD Meetings (Jan. 2017)
Journal of Financial Stability, Dec. 2018, Vol. 39, 90-103.
We study the association between daily changes in short selling activity and financial stock prices during extreme events using TailCoR, a measure of tail correlation. For the largest European and US banks, as well as European insurers, we uncover a strong relation during exceptional (extreme) days and a weak relation during normal (average) days. Examining days with large increases in short positions and large downfalls in stock prices, we find evidence of both momentum and contrarian short selling taking place. For North American bank stocks, contrarian short selling appears more practiced than for European bank and insurance stocks. We find that the uncovered relationship decreases with firm size and increases during ban periods, which is in line with short selling becoming more informative when constrained.
Assessing dynamic changes of the US financial market: insights from network science, (with Y. Gandica, J.Y. Gnabo and S. Béreau) PLOS ONE Journal, April 2018, Vol. 13(4).
The Impact of the low-carbon transition on financial markets (With. I. Samarin and M.-D. Zachary)
NBB Economic Review, December 2022
- Media coverage: De Tijd.
The issuance of debt securities by Belgian non-financial institutions (With. J. Mohimont and Ch. Piette)
NBB Economic Review, September 2021
Special feature, Cambridge-INET COVID-19 Economic Research, June 2020