Abstract
- This paper provides a survey of some of the existing literature on short-selling as well as new evidence of the market phenomenon known as naked short selling. It contributes to the literature by examining naked shorting and how it differs from conventional short selling of equity shares It details the pervasiveness of naked shorting, the process by which it occurs and its impact on security analysis, equity valuation and corporate governance. The impact naked shorting has on the markets, regulators and investors is significant both in scope and in breadth particularly with respect to the amount of dollars and the number of investors involved. This paper explores previously offered explanations of short-sale constraints through a perspective independent of heterogeneous agents or beliefs about asset payoffs subject to short-sale constraints. In this framework, the beliefs of optimistic, pessimistic or rational investors are marginalized, as are their ownership rights.