NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Short Sale Constraints and Stock Returns

Charles M. Jones, Owen A. Lamont

NBER Working Paper No. 8494
Issued in October 2001
NBER Program(s):   AP

Stocks can be overpriced when short sale constraints bind. We study the costs of short selling equities, 1926-1933, using the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is high. We find that stocks that are expensive to short or which enter the borrowing market have high valuations and low subsequent returns, consistent with the overpricing hypothesis. Size-adjusted returns are one to two percent lower per month for new entrants, and despite high costs it is profitable to short them.

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Document Object Identifier (DOI): 10.3386/w8494

Published: Jones, Charles M. and Owen A. Lamont. "Short-Sale Constraints and Stock Returns." Journal of Financial Economics 66, 2-3 (November-December 2002): 207-39. citation courtesy of

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