Short Selling and Trading Abuses on Nasdaq
We examine the potential for short-selling trading abuses unique to Nasdaq during a period when there was no up-tick rule and no effective prohibitions against "naked" short selling. We find that (a) short sellers earned significant abnormal returns on Nasdaq securities, but these were smaller than on NYSF_/AMEX securities; (b) they did not destabilize markets by selling into falling markets and exacerbating price drops; and (c) Nasdaq short sellers may be more susceptible than NYSE/AMEX shorts to "short squeezes." Our results cast doubt on the appropriateness of recent regulatory reforms established for Nasdaq and public concern over Nasdaq short-selling abuses.
Financial Services Review, Vol. 6, No. 1, Spring 1997, 27-39.