Pros & Cons of Short selling mechanism.
A highly volatile trading environment usually leads to market participants opting for certainty of execution as opposed to seeking price improvements a traditional dilemma. Christian Reuss, Head Cash Markets and Member of the Management Committee, Securities & Exchanges at SIX, explains the Swiss Stock Exchange favors open markets so that investors can adapt to changing economic views in a timely manner including mechanisms such as short-selling. Because of their potentially negative impact on real-time price formation, Christian Reuss is against a general ban on short selling.
Short selling mechanism has always been controversial.
Wenzhen Mai published a research on the external governance effects of short selling mechanism on technological innovation and enterprise performance at the journal of Finance and Market. This paper indicated that after relaxation of short-selling, the level of earnings management is decreased which turns out to increase the price efficiency of individual stocks. It also acts as an external corporate governor and innovation motivator to develop the overall value and innovation performance of firms.
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