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I still don’t understand why shorting is legal as it provides no value and enables hedge funds to extract value using illogical tricks.

deleted 3y ago
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bulldog13 3y ago
Have you tried googling or asking chat-gpt? That is what I do when I don't understand things.
- raincole 3y ago
  It's not that they want the answer. If they did they would've googled. It's just to express how they hate hedge funds (or generally anyone rich).
  - deleted 3y ago
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PaulHoule 3y ago
I found this bit of research https://arxiv.org/abs/2107.11255 https://arxiv.org/abs/2107.11255 One thing I know is that most people who sell short lose since the market does tend to go up over time.
throw0101a 3y ago
> as it provides no value Contra: > Advocates of short selling argue that the practice is an essential part of the price discovery mechanism.[52] Financial researchers at Duke University said in a study that short interest is an indicator of poor future stock performance (the self-fulfilling aspect) and that short sellers exploit market mistakes about firms' fundamentals.[53] > Such noted investors as Seth Klarman and Warren Buffett have said that short sellers help the market. Klarman argued that short sellers are a useful counterweight to the widespread bullishness on Wall Street,[54] while Buffett believes that short sellers are useful in uncovering fraudulent accounting and other problems at companies.[55] > Shortseller James Chanos received widespread publicity when he was an early critic of the accounting practices of Enron.[56] Chanos responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other "financial disasters" over the years.[57] In 2011, research oriented short sellers were widely acknowledged for exposing the China stock frauds.[58] […] > Several studies of the effectiveness of short selling bans indicate that short selling bans do not contribute to more moderate market dynamics.[61][62][63][64] * https://en.wikipedia.org/wiki/Short_(finance)#Views_of_short_selling https://en.wikipedia.org/wiki/Short_(finance)#Views_of_short... Per §History in above, short selling has been around since 1607 and the very first stock market (Dutch) and the Dutch East India Company. In the US, the SEC examined it in 1934, 1937, 1963, and 1976: * https://www.investopedia.com/articles/investing/110614/why-short-selling-legal-brief-history.asp https://www.investopedia.com/articles/investing/110614/why-s... This 2021 article examines the topic of banning short selling: * https://www.morningstar.com/funds/should-shorting-stocks-be-illegal https://www.morningstar.com/funds/should-shorting-stocks-be-...
- o11c 3y ago
  On the one hand, yes to all that, and shorts are equivalent to going long against everything else so must necessarily exist in some form. On the other hand, shorts (at least as implemented) are prone to cascading in both positive and negative directions, and are also an "obvious" reminder of how the "stock-market" economy is utterly divorced from the "production" economy. "Price discovery" is a lie when it is also "price creation".
  - l5870uoo9y 3y ago
    > "Price discovery" is a lie when it is also "price creation". Hence temporary bans are common when the market is volatile.
- tap-snap-or-nap 3y ago
  Good answer here. We probably need a lot more shorters than we currently have inorder to enjoy short phases of relative price equilibriums.
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xyzelement 3y ago
Does downvoting posts serve a purpose in setting their ranking? Shorting stock has the same effect for price.
jknoepfler 3y ago
Even if one accepted on face-value that shorts provide no value and enable hedge funds to extract value with "illogical tricks," I don't understand how that would justify making them illegal. I'm not saying the justification doesn't exist, but I don't think the reasons you articulated are sufficient.
klausa 3y ago
You don't think "the only way to profit from a stock is to make it go up" sets very perverse incentives too?
tekla 3y ago
"It should be illegal because I don't like it" is not a very convincing argument
keep_reading 3y ago
> Other small groups in the business world make their contribution to distress by raids on our markets with purpose to profit from depreciation of securities and commodities. Both groups are within the law; they are equally condemned by our public and business opinion; they are by no means helpful to the Nation. Hoover https://www.npr.org/2021/02/15/966877259/wall-street-short-sellers-hated-for-centuries https://www.npr.org/2021/02/15/966877259/wall-street-short-s...
cryptonector 3y ago
Because it provides price discovery opportunities and liquidity.

deleted 3y ago

[deleted]

bulldog13 3y ago

Have you tried googling or asking chat-gpt? That is what I do when I don't understand things.

raincole 3y ago
It's not that they want the answer. If they did they would've googled. It's just to express how they hate hedge funds (or generally anyone rich).
- deleted 3y ago
  [deleted]

PaulHoule 3y ago

I found this bit of research https://arxiv.org/abs/2107.11255 https://arxiv.org/abs/2107.11255 One thing I know is that most people who sell short lose since the market does tend to go up over time.

throw0101a 3y ago

> as it provides no value Contra: > Advocates of short selling argue that the practice is an essential part of the price discovery mechanism.[52] Financial researchers at Duke University said in a study that short interest is an indicator of poor future stock performance (the self-fulfilling aspect) and that short sellers exploit market mistakes about firms' fundamentals.[53] > Such noted investors as Seth Klarman and Warren Buffett have said that short sellers help the market. Klarman argued that short sellers are a useful counterweight to the widespread bullishness on Wall Street,[54] while Buffett believes that short sellers are useful in uncovering fraudulent accounting and other problems at companies.[55] > Shortseller James Chanos received widespread publicity when he was an early critic of the accounting practices of Enron.[56] Chanos responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other "financial disasters" over the years.[57] In 2011, research oriented short sellers were widely acknowledged for exposing the China stock frauds.[58] […] > Several studies of the effectiveness of short selling bans indicate that short selling bans do not contribute to more moderate market dynamics.[61][62][63][64] * https://en.wikipedia.org/wiki/Short_(finance)#Views_of_short_selling https://en.wikipedia.org/wiki/Short_(finance)#Views_of_short... Per §History in above, short selling has been around since 1607 and the very first stock market (Dutch) and the Dutch East India Company. In the US, the SEC examined it in 1934, 1937, 1963, and 1976: * https://www.investopedia.com/articles/investing/110614/why-short-selling-legal-brief-history.asp https://www.investopedia.com/articles/investing/110614/why-s... This 2021 article examines the topic of banning short selling: * https://www.morningstar.com/funds/should-shorting-stocks-be-illegal https://www.morningstar.com/funds/should-shorting-stocks-be-...

o11c 3y ago
On the one hand, yes to all that, and shorts are equivalent to going long against everything else so must necessarily exist in some form. On the other hand, shorts (at least as implemented) are prone to cascading in both positive and negative directions, and are also an "obvious" reminder of how the "stock-market" economy is utterly divorced from the "production" economy. "Price discovery" is a lie when it is also "price creation".
- l5870uoo9y 3y ago
  > "Price discovery" is a lie when it is also "price creation". Hence temporary bans are common when the market is volatile.
tap-snap-or-nap 3y ago
Good answer here. We probably need a lot more shorters than we currently have inorder to enjoy short phases of relative price equilibriums.

deleted 3y ago

[deleted]

xyzelement 3y ago

Does downvoting posts serve a purpose in setting their ranking? Shorting stock has the same effect for price.

jknoepfler 3y ago

Even if one accepted on face-value that shorts provide no value and enable hedge funds to extract value with "illogical tricks," I don't understand how that would justify making them illegal. I'm not saying the justification doesn't exist, but I don't think the reasons you articulated are sufficient.

klausa 3y ago

You don't think "the only way to profit from a stock is to make it go up" sets very perverse incentives too?

tekla 3y ago

"It should be illegal because I don't like it" is not a very convincing argument

keep_reading 3y ago

> Other small groups in the business world make their contribution to distress by raids on our markets with purpose to profit from depreciation of securities and commodities. Both groups are within the law; they are equally condemned by our public and business opinion; they are by no means helpful to the Nation. Hoover https://www.npr.org/2021/02/15/966877259/wall-street-short-sellers-hated-for-centuries https://www.npr.org/2021/02/15/966877259/wall-street-short-s...

cryptonector 3y ago

Because it provides price discovery opportunities and liquidity.