CRF Blog

In Praise of Short Sellers

by Bill Hayes

In In Praise of Short Sellers for the New Yorker, James Surowiecki looks at the positive side of short selling.

Shorting and distorting does happen, and is illegal. But the rise of activist shorts has been, on the whole, a good thing. All kinds of forces conspire to push stocks higher: investor overconfidence, corporate puffery, and Wall Street’s inherent bullish bias. Shorting helps counterbalance this, and it contributes to the diversity of opinion that healthy markets require. In 2007, a comprehensive study of markets around the world found that ones where short selling was legal and common were more efficient than ones where it was not. And a 2012 study concluded simply, “Stock prices are more accurate when short sellers are more active.”

Short sellers can also play a vital role in uncovering malfeasance. [more]