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> Well it might be correct in this case, but I'm not sold on there being a general connection between stuff getting shortable and the price going down. Reallly
by chollida1 8y ago
> Well it might be correct in this case, but I'm not sold on there being a general connection between stuff getting shortable and the price going down.
Reallly?
Consider this.... If no one can short something then all you can do is ignore or like it. In that case it only takes one investor to make the price go up.
With shorting you get a much more accurate view of what people value something at as you can bet on the downside.
More importantly it allows for arbitrage, which is the very market force that keeps our prices accurate.
Shorting doesn't mean prices will always go down, you could have shorted China to disastrous results in the past 4 years but it does cause a dampening effect in prices.
Or maybe a more direct example, if shorting doesn't have any effect on prices decreasing then why do many markets have a short sale rule?
If shorting doesn't have a connection to prices going down, why did the US prevent shorting of financial stocks during 2008?
- lordnacho 8y agoSure, I understand those ideas. Just saying the example given was weak. Weak for what it tries to support, in any case. You still have to explain how things went up so much when it was known futures were about to start trading, and why it would go down so much right after. Why would people be buying it like crazy if it was a generally known thing that when something becomes shortable, it goes down? Maybe look at the introduction of other exchange traded futures rather than an OTC market. Long term it matters whether things can be shorted, of course. But they're trying to say a very specific turn in the market was caused by this. And like the other poster says, it's not even true that it wasn't shortable.