Studies
A study of trading in initial public offerings by two SEC staff economists, published in April 2007, found that excessive numbers of fails to deliver were not correlated with naked short selling. The authors of the study said that while the findings in the paper specifically concern IPO trading, "The results presented in this paper also inform a public debate surrounding the role of short selling and fails to deliver in price formation."
In contrast, a study by Leslie Boni in 2004 found correlation between "strategic delivery failures" and the cost of borrowing shares. The paper, which looked at a "unique dataset of the entire cross-section of U.S. equities," credited the initial recognition of strategic delivery fails to Richard Evans, Chris Geczy, David Musto and Adam Reed, and found its review to provide evidence consistent with their hypothesis that "market makers strategically fail to deliver shares when borrowing costs are high." A recent study by Autore, Boulton, and Braga-Alves examines stock returns around delivery failures between 2005 and 2008 and finds evidence consistent with a positive link between delivery failures and borrowing costs.
An April 2007 study conducted for Canadian market regulators by Market Regulation Services Inc. found that fails to deliver securities were not a significant problem on the Canadian market, that "less than 6% of fails resulting from the sale of a security involved short sales" and that "fails involving short sales are projected to account for only 0.07% of total short sales.
A Government Accountability Office study, released in June 2009, found that recent SEC rules had apparently reduced abusive short selling, but that the SEC needed to give clearer guidance to the brokerage industry.
The Financial Crisis Inquiry Commission, appointed by Congress to investigate the 2008 financial crisis, makes no reference to naked shorting, or short-selling of financial stocks, in its conclusions.
Read more about this topic: Naked Short Selling
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