American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
A Long and a Short Leg Make for a Wobbly Equilibrium
American Economic Review
(pp. 1234–73)
Abstract
We provide a model to explain how the interaction between the spot and lending markets for stocks can lead to abrupt changes in short selling activity. Furthermore, rational short sellers may choose to abandon the market even as mispricing widens. We document empirically that the dynamics of short selling are fat tailed and subject to abrupt changes, especially for the stocks that the model identifies as susceptible to such dynamics.Citation
Gârleanu, Nicolae, Stavros Panageas, and Geoffery Zheng. 2026. "A Long and a Short Leg Make for a Wobbly Equilibrium." American Economic Review 116 (4): 1234–73. DOI: 10.1257/aer.20211548Additional Materials
JEL Classification
- G11 Portfolio Choice; Investment Decisions
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- G14 Information and Market Efficiency; Event Studies; Insider Trading
- G41 Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets [Neurofinance]