Finance Seminar with Hong Liu, Washington University St. Louis
The Department of Finance is proud to announce the upcoming seminar with Hong Liu, Olin Business School, Washington University in St. Louis
Hong Liu will present:
Authors:
Hong Liu, Olin Business School, Washington University in St. Louis and CAFR
Yajun Wang, Robert H. Smith School of Business, University of Maryland
Abstract:
Short-sale constraints are prevalent in many financial markets and have been activelyadjusted by regulators to tackle various problems in markets. However, theories ofthe impact of short-sale constraints on market liquidity and information quality arelargely absent. In this paper, we extend Liu and Wang (2013) to study this impactin the presence of information asymmetry, inventory risk, and imperfect competitionamong market makers. In contrast to Diamond and Verrecchia (1987), we show thatshortsale ban decreases bid price, increases ask price, implying an increase in bid-askspread. In addition, short-sale constraints increase the volatility of bid-ask spreads.The presence of asymmetry information can further magnify the adverse impact ofshort-sale constraints on market liquidity. On the other hand, the presence of shortsaleconstraints may increase investors’ incentive to produce more precise informationand thus improve aggregate information quality.
Location:
Solbjerg Plads 3, 2000 Frederiksberg
SP212