4 ms·
Normal short selling doesn't distort price discovery. Khan Academy describes this quite well: http://www.youtube.com/watch?v=zAkMhEqWFF0 http://www.youtube.com/
by Yrlec 14y ago
Normal short selling doesn't distort price discovery. Khan Academy describes this quite well: http://www.youtube.com/watch?v=zAkMhEqWFF0 http://www.youtube.com/watch?v=zAkMhEqWFF0.
However, with naked short selling it's a different story. When you're short selling something that you don't own you're in effect making it look like the supply is bigger than it actually is. This distorts the price discovery mechanism.
- cynicalkane 14y agoNaked short interest is almost certainly too ephermal to distort the price, but suppose it does due to illusory oversupply. So what's the objection? If you buy, hold, and sell, you want prices to be overall lower. Selling low isn't bad if it means you were also buying low. In short, as Warren Buffet likes to point out, low prices are good for investors.