재무연구 제 권 호 (2016년 9월)
Asian Review of Financial Research, Vol., No..
pp.59~100
pp.59~100
Can Short-Selling Alleviate the Underpricing? : Evidence from the positive PEAD in the Korean Stock Market
Shu-Feng Wang College of Business Administration, Sungkyunkwan University
Hyo-Jeong Lee Division of Business Administration, Kwangwoon University
This paper investigates whether short-selling facilitates arbitrage activity and mitigates the positive post-earnings announcement drift (PEAD), the well-known underpricing anomaly. Using the quarterly earnings announcement of the Korean Stock Exchange KOSPI200 composite stocks, we find that positive earnings stock in a difficult-to-short industry experiences larger and more persistent underpricing after earnings announcement than those in an easy-to-short industry; and that the observed larger underpricing in a difficult-to-short industry is associated with the short-sale constraint, not with their illiquidity or information inefficiency. Moreover, this inverse relation between the positive PEAD and its industry’s short-ability is stronger during the inactive equity linked warrant (ELW) trade period, thereby suggesting that short-selling alleviates the mispricing by facilitating arbitrage activities (not by the other channels); and ELW actually play roles as an alternative of short trade.
Shu-Feng Wang
Hyo-Jeong Lee
This paper investigates whether short-selling facilitates arbitrage activity and mitigates the positive post-earnings announcement drift (PEAD), the well-known underpricing anomaly. Using the quarterly earnings announcement of the Korean Stock Exchange KOSPI200 composite stocks, we find that positive earnings stock in a difficult-to-short industry experiences larger and more persistent underpricing after earnings announcement than those in an easy-to-short industry; and that the observed larger underpricing in a difficult-to-short industry is associated with the short-sale constraint, not with their illiquidity or information inefficiency. Moreover, this inverse relation between the positive PEAD and its industry’s short-ability is stronger during the inactive equity linked warrant (ELW) trade period, thereby suggesting that short-selling alleviates the mispricing by facilitating arbitrage activities (not by the other channels); and ELW actually play roles as an alternative of short trade.
