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Price discovery happens just fine in markets that don’t have short selling. The laws of supply and demand don’t require short selling to reach equilibrium.

• vkou 6y ago
  > Price discovery happens just fine in markets that don’t have short selling. No, it doesn't. Real estate is a great example of a market where you can't short sell, and is also a great example of a market with absolutely horrible price discovery.
  • danhak 6y ago
    Of course you can short sell real estate. There is a famous motion picture about a group of people who did exactly that during the global financial crisis. You don’t even need access to credit default swaps. REITs are publicly traded and can be shorted as easily as any stock. If you are talking about price discovery of individual properties—-that stems more from the fact that property is generally illiquid and not fungible. Not from the fact that I can’t take a directional bet on the value of your specific house.