Short Selling
Edited academic collection on the mechanics and evidence.
Summary
The reference has not verified this book in detail; the summary states only what the title, author and subject establish.
Fabozzi edited a collection of contributions on short selling, covering the mechanics, the strategies, the market structure and the academic evidence. The reference has not verified the individual chapters.
The subject matter divides into three areas. The mechanics cover stock borrowing and lending, the rebate rate paid on cash collateral and how it becomes negative for hard-to-borrow securities, recall risk when the lender demands the shares back, margin requirements, and the regulatory framework including the uptick rule and later Regulation SHO.
The strategy material covers short selling as part of long-short and market-neutral portfolios, as a hedge, and as a standalone directional strategy. The distinctive risk characteristics matter: the loss on a short position is unbounded while the gain is capped at the position value, position size grows as the trade moves against the seller, and short interest itself can produce squeezes when many participants must cover simultaneously.
The academic material covers the evidence on whether short selling improves price efficiency, the relationship between short interest and subsequent returns, the effects of short-selling restrictions on price discovery, and the debate over whether constraints on short selling permit overvaluation to persist, which follows from Miller's argument that when pessimists cannot express their view prices reflect only the optimists.
The book predates several important developments, including the 2008 short-selling bans, the growth of securities lending as an institutional revenue source, the retail-driven squeezes of 2021 and the current market structure. Readers should verify regulatory detail against current rules.
Key takeaways 7
- The loss on a short position is unbounded while the gain is capped, which inverts the risk profile of a long position.
- A losing short position grows as a share of the portfolio, so it demands attention exactly when the seller is least confident.
- Stock borrowing costs rise and rebate rates go negative for securities that many participants want to short.
- Recall risk means a lender can demand shares back, forcing the seller to cover at the worst moment.
- When pessimists cannot express their view through short sales, prices reflect only optimists' beliefs and overvaluation persists.
- Short interest concentrated in a security with limited float creates the conditions for a squeeze.
- Restrictions on short selling reduce price discovery, which the evidence from short-selling bans supports.
Who should read it
Investors and risk managers who need the mechanics, risks and evidence on short selling in one reference, checked against current regulation.
About Frank J. Fabozzi
Finance professor and longtime editor of the Journal of Portfolio Management, who writes and edits the standard fixed-income handbooks.
The handbooks define how bond, mortgage and preferred-stock markets are measured: cash-flow mechanics, duration and convexity, credit structures, and the pricing conventions desks actually use. Practitioners and CFA candidates work through these volumes to value and hedge the instruments the equity literature skips.
Where it sits in the reference 3
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