TY  - JOUR
AU  - Jones,Charles M.
AU  - Lamont,Owen A.
TI  - Short Sale Constraints and Stock Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8494
PY  - 2001
Y2  - October 2001
UR  - http://www.nber.org/papers/w8494
L1  - http://www.nber.org/papers/w8494.pdf
N1  - Author contact info:
Charles M. Jones
Columbia University
Uris Hall, Room 801
New York, NY  10027
Tel: 212 854 4109
E-Mail: cj88@columbia.edu

Owen Lamont
Department of Economics
Harvard University
Cambridge MA 02138
E-Mail: owen.lamont@yale.edu
AB  - 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.
ER  -