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Short sellers are good for markets

economist.com

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Re: Short sellers are good for markets

#41

Post by Nokinside »

tryptophan wrote: post #13

Something that the article did not mention: Short sellers reduce volatility and lead to smaller drops. Why? Because having shorters guarantees that you will have a buyer for a stock that is falling. To exit a short trade you need to purchase shares. This helps prevent stocks from falling too low out of panic or undervaluation, benefiting people who are long the stock.

Short selling is generally good.

The negative reputation comes mainly from the cases where short selling is used for market manipulation like coordinated bear raids. If the market regulators are awake, this should not be a reason to oppose short selling in general.

Re: Short sellers are good for markets

#42

Post by UncleEntity »

hellogoodbyeeee wrote: post #33
diminish wrote: post #10

So far I have read in various articles why monopolies, competition, rational actors, irrational actors (for overcoming crisis), long term investors, and short term sellers are good for the markets. Are there any actors which are bad for the market?

I think you have formed a bit of a strawman argument here. Monopolies are never good for markets, pretty much but definition. Regulated monopolies, such as utility companies, are sometimes good for consumers though. I don't exactly know what you mean by irrational actors are good for overcoming a market crisis, but I'd probably say that the market isn't functioning in a crisis and that irrational actors might put it…

> Monopolies are never good for markets, pretty much but definition. Regulated monopolies, such as utility companies, are sometimes good for consumers though.

I actually have the exact opposite opinion, natural monopolies are good for the market while government granted monopolies are not.

Natural monopolies (i.e., ones not protected by fiat) gained their position through being the best in that space and there's nothing to stop competitors from overthrowing them if they lose their way while the opposite is far from true -- try to overthrow a gov't granted monopoly and you end up in court for patent (or whatever) infringement.

Re: Short sellers are good for markets

#43

Post by lordnacho »

What's good for markets is for there to be a variety of opinions about a stock. Long term opinions, short term opinions, positive opinions, negative opinions. Absolute values (TSLA is worth $500), relative values (TSLA should be worth more than GM).

What would be bad would be for us to censure certain expressions, so that we only hear certain ideas.

Re: Short sellers are good for markets

#44

Post by romed »

AznHisoka wrote: post #36
Gitnumb wrote: post #30

Short sellers are incentivized to create false rumors and sabotage a a company's reputation. That's not really good.

By your logic, people who are long are incentivized to create false rumors to pump up a company’s reputation.

In practice, it is far, far more common for bad actors to run the pump and dump than to short and issue fake news. The latter is rare enough that we don't have a word for it. The former is common enough to be called "pump and dump". There's a good reason why shorting is not a common scam technique: your gains are capped at 100% and your risk is unlimited. On the long side, it's the opposite. A pump-and-dump has unlimited upside and the you can only lose 100%.

Re: Short sellers are good for markets

#45

Post by [deleted] »

aaavl2821 wrote: post #29

This article doesn't mention this, but short selling is a fundamental piece upon which many other financial instruments are built, because it allows hedging If you take away short selling, you take away many other healthy components of functioning markets. You won't have functioning options markets for example, because market makers can't hedge their positions I'd actually like to see more short selling. Especially i…

[deleted]

Re: Short sellers are good for markets

#46

Post by cjbenedikt »

UncleEntity wrote: post #42
hellogoodbyeeee wrote: post #33

Earlier quoted context omitted.

I think you have formed a bit of a strawman argument here. Monopolies are never good for markets, pretty much but definition. Regulated monopolies, such as utility companies, are sometimes good for consumers though. I don't exactly know what you mean by irrational actors are good for overcoming a market crisis, but I'd probably say that the market isn't functioning in a crisis and that irrational actors might put it…

> Monopolies are never good for markets, pretty much but definition. Regulated monopolies, such as utility companies, are sometimes good for consumers though. I actually have the exact opposite opinion, natural monopolies are good for the market while government granted monopolies are not. Natural monopolies (i.e., ones not protected by fiat) gained their position through being the best in that space and there's noth…

Hmmm....not sure about natural monopolies...think Amazon or Bloomberg...

Re: Short sellers are good for markets

#47

Post by JumpCrisscross »

tim333 wrote: post #37
aaavl2821 wrote: post #29

This article doesn't mention this, but short selling is a fundamental piece upon which many other financial instruments are built, because it allows hedging If you take away short selling, you take away many other healthy components of functioning markets. You won't have functioning options markets for example, because market makers can't hedge their positions I'd actually like to see more short selling. Especially i…

Nothing against shorting but you can write puts and calls without being needing short selling. Calls are naturally written by people holding a stock who don't mind selling some and puts by people with cash who don't mind buying some stock.

> you can write puts and calls without being needing short selling

Put-call parity [1] makes option markets work. It lets anyone to manufacture a put from a call and a short, or a call from a put and a long. This ability to spin up options on demand is critical to options market making. (Source: former options market maker.)

Take away shorting and you vastly increase the risk of correcting option mispricing. Given how fundamental options are to other instruments, e.g. convertible debt, this would directly decrease funding options (and increase funding costs) to companies.

[1] https://en.m.wikipedia.org/wiki/Put–call_parity

Re: Short sellers are good for markets

#49

Post by tim333 »

Nokinside wrote: post #32
anilshanbhag wrote: post #27

Earlier quoted context omitted.

This is not true. Highly shorted stocks are some of the most volatile ones. Anyone can buy a stock that is falling, most stocks have little short interest (<10%) meaning volume when stock going up or down is most people buying or selling down their long position.

> Highly shorted stocks are some of the most volatile ones. I'm not convinced by this argument. * Is the volatility caused by short selling or does volatility attract short sellers? * Is it possible that short selling is actually reducing the volatility of very volatile stock? Australia banned short selling after financial crisis. The result was increased volatility in stocks, less trade and larger spreads.

Also if you look at the price graph for Tesla it's been kind of flat for the last 5 years with the price around $200-300 give or take.

Re: Short sellers are good for markets

#50

Post by andrewtbham »

This article does not address the core issue with today's short sellers. They target companies that are dependent on financing and use fear uncertainty and doubt to ruin the company's reputation. They corrupt journalists, analysts, regulators, law enforcement, and ratings agencies... They work with known criminals and recruit saboteurs. Details in this link

https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-s...

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