Input 2021.01.26 08:56 | Revision 2021.01.26 10:24
The problem of’following selling’ following short selling transactions
“Blocking illegal short selling is not the essence of the problem”
“You cannot judge the value of the short selling system itself as’bad’. Blocking illegal short selling does not solve the current situation. The positive or negative effects of the short selling system depend on the capital market conditions of the country. Korea also market Efforts to improve the trading system must be preceded.”
Sang-gyeong Jeon, a professor of finance management at Hanyang University, who met on the 21st, said in an interview with Chosun Biz held at the laboratory of Hanyang University in Seongdong-gu, Seoul. Prof. Jeon presented the thesis’Investment Performance in Short Selling and Credit Transactions’ in collaboration with Dr. Eun-A Im this month. From June 30, 2016 to June 28, 2019, a comparison of profits from short selling and credit transactions showed that short-selling investors earned an average of 2.4 billion won per day, while credit trading investors lost 1 billion won. .
However, when Professor Jeon analyzed the credit transaction and short selling balance, there was an average daily difference of 3.4 billion won. Short selling accounts for foreigners and institutional investors, and credit transactions for individual investors. It means that individuals lost more than foreigners and institutions in the trading method of investing by borrowing money or stocks.
Professor Jeon argues that these profits should be balanced. Professor Jeon explained, “The reason why short selling profits are so high is that the influence of short selling investors is greater than that of credit trading investors.” “As ordinary investors follow short selling investors, the stock price decline is accelerated.”
This is different from common sense that short-selling investors mobilize large amounts of money on their own, affecting the stock price decline. Professor Jeon said, “The size of the actual short sale price is twice as small as the size of the credit transaction price,” he said. “In order to explain this phenomenon only with the size of its own funds, credit investors have to make more profits, but it was not.”
He continued, “We need to improve some backward trading systems in the domestic stock market, which are inevitable to overtrust short-selling investors and’follow-sell’,” he said. “Currently, the government, political circles, and individual investors are paying attention to illegal short selling (non-borrowing short selling). Is not an essential approach to solving the situation.”
Next is one question and one answer with a former professor.
Why is there a difference in profits between short selling and credit trading?
“This is because short-selling investors have a greater influence on the market than credit-trading investors. That means that short-selling investors have superior profitability, which means that a short-selling transaction followed the stock price decline. This means that the stock seller following the short-selling investor follows the short-selling investor. In an efficient market, the influence of one investor’s actions on the choice of another is limited, and a market with strong following trading can be seen as an inefficient market. ”
“No. As a result of the study, compared to the size of the transaction value, the credit transaction amount was 7.95% of the total market transaction amount, which was almost twice as high as 4.52%, which is the share of the short sale transaction amount. It had to have a bigger impact on the market. Rather, the fact that a short sale of only 4.52% has an impact on the stock price decline is a testament to the fact that there are a lot of investors selling with short sellers.”
Short selling Investors started short selling based on their intelligence, and the real bad news occurred, and the stock price fell.
“It is an additional research task, and follow-up research is expected to be underway soon. However, with a few exceptions, it is difficult to assume that a short seller investor is making an investment using undisclosed information about the company. Delisting possibility, rights offering progress, conversion Consider a company that has suffered bad news, such as the opening of debentures (CB) and bonds with underwriting rights (BW), block deals (overtime bulk selling), etc. Investors here are worried that investment sentiment will shrink and further bad news will come out. Under the circumstances, if a short sale is made to the stock, it is easy for ordinary investors to follow it. Based on the current research results, it is reasonable to interpret that this type of follow-up sale has increased the profitability of short-selling investors.”
What is the reason for the follow-up selling?
“The backward stock market trading system has created an environment in which short-selling investors are forced to exert excessive influence. First, a large number of stocks that are likely to be delisted are being traded, and negative factors such as capital increase and the opening of CB/BW sales are progressing. The period is too long As general investors lack information, they overtrust and follow the selling behavior of short selling investors Since long-term investment culture has not been established in Korea, foreign long and short equity hedge funds, which mainly trade short selling, are likely to exert influence. It’s also the environment.”
Currently, it is illegal to place a short sale without a stock borrowing contract. This is due to concerns that a large sell order could disrupt the market. The government and politics have established a detection system to block illegal short selling and are strengthening the punishment system. Prof. Jeon put this effort into a “limited approach” and argued that “the essence of the short selling problem is not to block illegal short selling, but to improve the trading system backwards.”
Why do I think that illegal short selling is not the solution to the problem?
“The short selling problem is not a problem that can be solved by blocking non-borrowing short selling. Non-borrowing short selling is a simple mistake that occurs inside securities companies, and is often a’one-time event.’ The proportion of short selling in the whole is small, so its influence is insignificant. However, it is not a fundamental solution to the problem. Rather, it is time to think about how to improve the investment culture that blindly follows short-selling investors’ predictive power and analytical power.”
How to reduce the market influence of short sellers?
“The process of executing major events that affect a company’s stock price decline should be reduced. Compared to advanced stock markets such as the United States, the process of determining the issue price of a capital increase is unnecessarily long. In addition, the opening of new stocks due to CB or BW is unnecessarily long. In the case of a company with an indication of, it is necessary to disclose the supply and demand information on how much additional sales will be released so that it does not stimulate the unnecessary anxiety of investors. Companies that are in danger of delisting, where short selling investors tend to have influence, should be actively organized on the exchange.”
It doesn’t sound like a problem to be solved right away just by improving one system.
“I agree. It can take a significant amount of time to improve these challenges. However, this long-term approach is a fundamental approach to realizing the preemptive function of short selling. We need to change the environment in which we are culturally compelled to follow short-selling investors. Analysts. The culture of reluctance to issue short-selling reports strengthens the follow-up sentiment for short-selling investors, and analysts must actively disclose corporate negatives to prevent the formation of a’black-and-white’ market. It is also important to strengthen the benefits of long-term investment in order.”