4 ms·

> But then enough shorting can cause them to fail, because it makes it more difficult to raise money by selling new shares or using shares as collateral. That

by Lazare 8y ago

> But then enough shorting can cause them to fail, because it makes it more difficult to raise money by selling new shares or using shares as collateral. That's one of those ideas that looks kinda of plausible on paper, but doesn't really work in the real world. There's just no real evidence that this is a thing that actually happens, and the people who complain the loudest about it are invariably not victims of it. The current standard-bearer for the "shorts are evil and make people fail!" camp seems to be Musk right now, and there is absolutely zero evidence to support this in the case of Tesla. None of Tesla's issues (with funding or anything else) can be traced back to people shorting the stock. (Well, Musk's strange "taking Tesla private" tweet may have hurt Tesla's ability to raise funding, and perhaps that was part of some sort of incredibly ill-advised response to shorts, but even if so, the cause of Tesla's issue there is Musk, not short-selling per se.) > It's not exactly a moderating influence. On balance, overall, it is. There's extensive evidence of this. For example, China has a list of stocks which you can't short, and when stocks are placed on this list, their volatility increases, even controlling for other factors.

AnthonyMouse 8y ago
> That's one of those ideas that looks kinda of plausible on paper, but doesn't really work in the real world. There's just no real evidence that this is a thing that actually happens, and the people who complain the loudest about it are invariably not victims of it. Can you explain what part of it doesn't really work? It seems kind of odd to ask for evidence of something which is a mathematical formula. If shorts reduce the share price by X before you sell Y new shares then you consequently have X times Y less new capital than you would have. Is the argument supposed to be that shorting the stock doesn't lower the stock price? Granted this doesn't always matter. If a company is not trying to raise funding, what does it matter their cost to raise funding? But sometimes they are. > On balance, overall, it is. There's extensive evidence of this. For example, China has a list of stocks which you can't short, and when stocks are placed on this list, their volatility increases, even controlling for other factors. I can see the argument for it can be, which goes like this: Buyers are overly exuberant so people take out short positions which keep the price from going too high. Then the news is middling and the stock falls somewhat, but the shorts closing their positions keep it from falling more as they buy back shares. But that's assuming the shorts were right. If they're wrong they push the price the opposite of the way it should be going and when the news comes it snaps even harder the other way.
- hyperpape 8y ago
  You don’t need evidence for the formula, you need evidence that the formula accurately describes some dynamics in the real world. Things like “the formula predicts X, and we saw X”.
- Lazare 8y ago
  > Can you explain what part of it doesn't really work? It seems kind of odd to ask for evidence of something which is a mathematical formula. Counterexample: It turns out that planes can't fly! This is easily demonstrated by reference to the standard formula for calculating buoyancy, F = V x (d1 - d2) x g, where F is the force lifting the plane into the air, V is the volume of the plane, d1 is the density of air, d2 is the density of the plane, and g is the force of gravity. A moment's research shows that a Boeing 747 is heavier than the equivalent volume of air, meaning F will always be smaller than 1. QED, planes can't fly. The fact I can hear one flying overhead right now is, I admit, evidence I may have missed some other factor, but we don't need evidence to evaluate the truth of mathematical formulas, right? :) In other words: Just because something is A factor doesn't mean it's a relevant factor, or isn't overwhelmed by other factors. And we have zero (literally, zero) evidence that short selling is a factor in the ability of firms to raise funds, or in their cost of funds, once we control for other factors. And we have plenty of examples of firms targeted by short sellers who have raised funds on favourable terms. > If they're wrong they push the price the opposite of the way it should be going and when the news comes it snaps even harder the other way. Right, but again, on balance, this effect ends up being drowned out by other effects. You've made a great stab at an explanation for something that isn't really happening, so doesn't really need an explanation.

by Lazare 8y ago

AnthonyMouse 8y ago

> That's one of those ideas that looks kinda of plausible on paper, but doesn't really work in the real world. There's just no real evidence that this is a thing that actually happens, and the people who complain the loudest about it are invariably not victims of it. Can you explain what part of it doesn't really work? It seems kind of odd to ask for evidence of something which is a mathematical formula. If shorts reduce the share price by X before you sell Y new shares then you consequently have X times Y less new capital than you would have. Is the argument supposed to be that shorting the stock doesn't lower the stock price? Granted this doesn't always matter. If a company is not trying to raise funding, what does it matter their cost to raise funding? But sometimes they are. > On balance, overall, it is. There's extensive evidence of this. For example, China has a list of stocks which you can't short, and when stocks are placed on this list, their volatility increases, even controlling for other factors. I can see the argument for it can be, which goes like this: Buyers are overly exuberant so people take out short positions which keep the price from going too high. Then the news is middling and the stock falls somewhat, but the shorts closing their positions keep it from falling more as they buy back shares. But that's assuming the shorts were right. If they're wrong they push the price the opposite of the way it should be going and when the news comes it snaps even harder the other way.

hyperpape 8y ago
You don’t need evidence for the formula, you need evidence that the formula accurately describes some dynamics in the real world. Things like “the formula predicts X, and we saw X”.
Lazare 8y ago
> Can you explain what part of it doesn't really work? It seems kind of odd to ask for evidence of something which is a mathematical formula. Counterexample: It turns out that planes can't fly! This is easily demonstrated by reference to the standard formula for calculating buoyancy, F = V x (d1 - d2) x g, where F is the force lifting the plane into the air, V is the volume of the plane, d1 is the density of air, d2 is the density of the plane, and g is the force of gravity. A moment's research shows that a Boeing 747 is heavier than the equivalent volume of air, meaning F will always be smaller than 1. QED, planes can't fly. The fact I can hear one flying overhead right now is, I admit, evidence I may have missed some other factor, but we don't need evidence to evaluate the truth of mathematical formulas, right? :) In other words: Just because something is A factor doesn't mean it's a relevant factor, or isn't overwhelmed by other factors. And we have zero (literally, zero) evidence that short selling is a factor in the ability of firms to raise funds, or in their cost of funds, once we control for other factors. And we have plenty of examples of firms targeted by short sellers who have raised funds on favourable terms. > If they're wrong they push the price the opposite of the way it should be going and when the news comes it snaps even harder the other way. Right, but again, on balance, this effect ends up being drowned out by other effects. You've made a great stab at an explanation for something that isn't really happening, so doesn't really need an explanation.