July 18, 2023 - With recently renewed calls for bans on short selling, the practice is once again at the center of a decades-old debate: Are short sellers villains or heroes of the capital markets? Do they cause declining company and market performance, or are they the canaries in the coal mine exposing corporate fraud and over-hyped stocks? As high-profile advocates and enemies alike make their views known, it's worthwhile to revisit the key arguments of the debate.
Advertisement · Scroll to continue
First, a quick primer. Short selling is the practice of selling now a stock you don't own (typically one you've borrowed) and buying it later to return to the original owner. Short sellers do this because they believe that the price of the stock will go down — to use a numerical example, they bet that they can sell a borrowed stock for $100 today and buy it for $50 tomorrow, before they have to give the stock back to the owner.
Advertisement · Scroll to continue
In the simple terms of law-and-economics Judge Richard Posner, short sellers "bet on a declining market" and make money if "they have better information or better instincts than other traders, those who will buy from them."
Advocates of short selling tend to point out its greatest benefit: its potential to correct market inefficiencies by deflating over-hyped stocks, putting downward pressure on prices until they reset to their correct, intrinsic value. Short sellers do this by acting on negative information about...
CHESHIRE Police says that it has arrested a Warrington woman on suspicion of wasting police time after resources from two police forces were diverted to ‘false kidnap claims’. In the early hours o...