Monday, February 20th, 2012 2:15 pm

Short Selling

Bans on the short selling of financial securities, such as stocks and government bonds, lead to prices that are further, on average, from their fundamental values.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel
Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 3
I think this would depend on the type of mispricing. E.g., heterogeneous priors with shortselling can lead to wide swings in prices.
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 2
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 5
Bio/Vote History
         
Autor David Autor MIT No Opinion
Bio/Vote History
         
Baicker Katherine Baicker Harvard Agree 3
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 2
Bio/Vote History
         
Chetty Raj Chetty Stanford Did Not Answer
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 10
I would have said strongly, but there may be instances where one could use other securities to synthesize or mimic the short.
Bio/Vote History
         
Currie Janet Currie Princeton Uncertain 2
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 5
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 2
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 10
Restricted trade on one side of the market, if binding, by definition prevents matching supply with demand, and thus "fundamental" prices.
-see background information here
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 8
Even with short selling, it can be hard to stop a bubble. Without it, well...
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 3
Bio/Vote History
         
Fair Ray Fair Yale Agree 5
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 6
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 5
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 3
more impt question is whether shorts produce info that improve firm governance. mandatory disclosure rules raise firm profits & stock price
-see background information here
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 5
If short selling is lawful and fraud is not prosecuted, there is a big opportunity to spread fraudulent rumors and gain by shorting.
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 7
On average definitely. By the nature of learning processes, not always.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Judd Kenneth Judd Stanford Did Not Answer
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Strongly Agree 9
This desperate policy does not work. See Geanakoplos for the dangers of leverage and the inability to short in producing instability.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 2 Bio/Vote History
         
Lazear Edward Lazear Stanford Agree 7
Most studies that I have seen indicate that banning short selling has no effect on average price, but does lead to higher variance
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 3
Seems logical as a matter of economic theory. As a matter of practice, I don't know the relevant evidence.
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 6
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 8
Subject to the qualification of market corners.
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Uncertain 5
I can imagine different scenarios, and I don't believe there is clear-cut empirical evidence.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton Did Not Answer
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 2
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Strongly Agree 9
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 7
If they have any effect, it's got to be in that direction.
Bio/Vote History
         
Shin Hyun Song Shin Princeton Uncertain 9
Bio/Vote History
         
Stock James Stock Harvard Agree 4
Bio/Vote History
         
Stokey Nancy Stokey Chicago Uncertain 1
I've never seen any evidence on this point.
Bio/Vote History
         
Thaler Richard Thaler Chicago Strongly Agree 8
If Bob Shiller had succeeded in making it possible to short real estate markets, some of the bubbles might have been abated.
Bio/Vote History
         
Udry Christopher Udry Yale Uncertain 1
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 9
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

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