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Broker and Institutional Investor Short Selling
Ben R. Marshall*
Massey Business School, Massey University, New Zealand a
Nhut H. Nguyen
Department of Finance, Auckland University of Technology, New Zealand a
Nuttawat Visaltanachoti
Massey Business School, Massey University, New Zealand
Jennifer Zhu
New Zealand Exchange, New Zealand
Abstract
Brokers have access to order-flow data, allowing them to earn larger returns than other investors from their short selling. However, our results indicate that they do not exploit this informational advantage. Returns following broker short selling are not more negative than they are following institutional investor (mutual and sovereign wealth fund) short selling. Rather, brokers appear to try and stabilize the market. Unlike institutional investors they short-sell more when there is an increase in buy-sell order imbalance or when stock-specific news is positive. Broker short selling improves market quality. Price efficiency and liquidity improve and volatility declines following broker short sales.
JEL Classification Codes: G12, G24
Keywords: Short Selling, Institutional Investor, Brokers
This Version: November 10, 2022
Acknowledgments: Corresponding author: Ben Marshall, School of Economics and Finance, Massey University, Private Bag 11-222, Palmerston North, New Zealand. Tel. 646 951 7033; fax 646 350 5651; e-mail [email protected]. We thank the New Zealand Exchange for providing data for this research, seminar participants at Massey University, and, Jeremy Anderson, Jayan Parbhu, Joesph Redpath, Philip Solaz, Brendon Tai, and for useful comments. All errors are our own.
