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Essays on Information and Transaction Quantities Open Access


Other title
Keynesian Beauty Contest
Regulation SHO
Short Selling
Reference Demand
Type of item
Degree grantor
University of Alberta
Author or creator
Torabi, Behnam
Supervisor and department
Watanabe, Masahiro (Finance)
Aguerrevere, Felipe (Finance)
Watanabe, Akiko (Finance)
Examining committee member and department
Banerjee, Sanjay (Accounting)
Huh, Sahn-Wook (Finance)
Faculty of Business
Date accepted
Graduation date
2017-06:Spring 2017
Doctor of Philosophy
Degree level
This thesis presents two essays. I (1) study the effect of short selling regulation SHO on informational efficiency of naked short selling activity; (2) analyze the role of reference demands in traders’ decision-making. In these essays, I highlight the informative role of transaction quantities. Chapter 1 studies the impact of the 2005 short selling regulation (regulation SHO) and its more restrictive version of 2008. Regulation SHO was put in place to curb potentially manipulative naked short selling. However, this regulation has been criticized in the literature for reducing market quality. Contrary to other findings, I show that this regulation deters uninformed traders, and improves the informativeness of naked short sellers. In particular, after 2008, the aggregate naked short selling activity has increased in information content and has become significantly connected to the percentage of net short positions in the E-Mini stock index futures markets. Consistent with the increased informativeness of naked short sellers, I find that the market views excessive and persistent naked short selling activity as a bearish signal only after 2008. In Chapter 2, I analyze an economy where each trader demonstrates the behaviour of assessing other traders' average opinion of his demand. Each trader forms his unique expectation about such an average opinion to obtain his reference demand. Traders attempt to find their optimal demands so that they do not substantially deviate from their reference demands. I find that the standard differences of opinion models suggest that traders take positions exactly equal to their own reference demands, and further, volume and social welfare increase once traders pay attention to their reference demands. However, I propose a novel model indicating that social welfare does not necessarily increase. In this suggested model, when traders pay more attention to their reference demands, numerical instances show that volume increases and their optimal demands get closer to their reference demands. The models explain one component of the information in equilibrium price that comes from demand.
This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for the purpose of private, scholarly or scientific research. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.
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