Que S:
You asked for "commentary on whether, how, and to what extent short selling creates selling pressure, as often said? I see pressure to buy back, but I struggle to see how borrowing shares creates selling pressure. Seems as though long shares would be fewer, which wouldn't make them cheaper and cause a price decline, unless mere short interest is assumed to scare away buyers."
The answer to this specific question lies in the source of the borrows or "locates" in stock borrowing parlance. Most shares are held long in brokerage accounts, for a long time by institutional holders. INTC has 6.730 billion shares outstanding but its average daily volume is 52 million shares traded. But that doesn't mean that there are only 6.678 billion (6.730 - 52) tucked away in digital vaults, actually there are more, because many of the 52 million shares traded are traded more than once a session. When an investor takes a view that INTC is not a good investment at these prices, he borrows via his broker some of the shares from the vault with a promise to return them after he btc's them. It does put some selling pressure on the market, the same as any similar decision about INTC's future investment value. When those views or decisions change, then the short seller will btc the shares and return them, via his broker, to the lending institution.
If the only shares available for sale were "long" shares rather than borrowed shares, then prices would be artificially supported longer than otherwise, but when they fell hard enough, they would probably be artificially depressed longer than otherwise.
The following isn't exactly what you're looking for but it is entertaining how people are grasping at (short) straws to try to vivify these markets.
Message 16427833
I don't post there but a friend emailed me the question and asked me my thoughts.
In the end, markets are about price discovery, nada mas. You discover the price by having as many bids and asks as possible, which means as much liquidity as possible. If I'm willing to sell you NBR at this price, what does it matter to you if I own the shares and am getting out at a profit, or a loss, or if I borrow the shares in hopes of making a profit? Further, what does it matter to me if you are buying to establish a hopeful long or buying to close a successful or unsuccessful short? Each transaction takes us to price discovery. It's bad enough shorts have to contend with that stupid uptick rule--to make the market truly fair longs would only be able to buy on a downtick. Best solution, get rid of the tick rules altogether.
Kb |
