What determines the level of short-selling activity?

Financial Management (Financial Management Association), Winter, 2007 by Hung Wan Kot

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(1) The New York Stock Exchange has a tick test under NYSE Rule 440B, and Nasdaq has a bid test under NASD Rule 3350.

(2) Bid-ask spread is a good proxy for liquidity (Amihud and Mendelson, 1986). In an unreported table, I obtain the bid-ask spread of the stock prices from TAQ database and run the regression for the sample period 1993-2002. The relation between the bid-ask spread and the RSI is significantly negative. The coefficient of the spread is -0.0043 with a t-value of -10.38 on the NYSE and is -0.0082 with a t-value of-22.60 on Nasdaq.

(3) I thank the referee for his or her suggestions.

Hung Wan Kot *

* Hung Wan Kot is an Assistant Professor at Honh Kong Baptist University, Hong Kong.