February 11, 2025Commissioned Report
White paper: Short selling – Essential to strong capital markets
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White paper: Short selling – Essential to strong capital markets
A new white paper published by MFA examines the role of short selling in capital markets. “Short selling: Essential to strong capital markets,” uses extensive academic research and regulatory studies to prove that short selling strengthens capital markets and regulatory restrictions degrade capital markets. James A. Overdahl, Ph.D., Partner at Delta Strategy Group and former Chief Economist at the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) authored the white paper.
How does short selling improve capital markets?
Uncovering misconduct
Short sellers help detect corporate misconduct, including fraud, mismanagement, and accounting irregularities.
Enhancing price discovery and market efficiency
Short selling contributes to accurate price discovery and ensures securities reflect their economic fundamentals.
Improving market liquidity
Short selling improves market liquidity by facilitating market-making and supporting capital formation.
Reducing volatility
Short selling improves market liquidity by facilitating market-making and supporting capital formation.
Facilitating risk management
Short selling enables investors to hedge positions and manage portfolio risk effectively.
Related resource
Op-ed: A ban on short selling is a bad idea
“I believe any new regulatory intervention banning short selling would be a huge mistake. The SEC’s longstanding view has been that this practice plays an important role in promoting market quality and helping investors by contributing to price discovery, liquidity, risk management and by lowering the overall cost of trading and raising capital.” – James Overdahl
