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Cub-Economist
F
◀Shortsellingsuppressesoverspeculativeforces.
Principlesofshortselling
R
3
2
▼Shortsellingreducesbubblephenomenon.
1
ⓒ
Investors can sell an overvalued stock first and buy
prices, it could create a bubble; short selling forces
lateratalowerprice.Thisiscalled“shortselling,”
wouldselloutthestocksrecoveringthestockprices.
astrategyusedwhenaninvestorbelievesthatthe
Itwouldbeagreatlosstothespeculativeinvestors
share price will fall. People might ask, “How
whenthepricesfall,whichiswhypricesshould
would an investor sell something he or she
not be raised recklessly, coexisting with short
does not own?” This can be done by two
sellingforces.Thisshowsthewholeprocess
methods: covered short selling and naked
of prevents the bubble phenomenon caused
short selling. Covered short selling means
byshortselling.
that the investors sell shares that were
Shortstocksellingisadouble-edgedsword
borrowed from the shareholders of a target
inthemarketplace,possessingitsownrisks.
company. They are obligated to buy back
Regarding the way of short selling, which
and return the shares to the lenders at a
sellssharesthatdonotbelongtotheseller,
e
c
n
latertime.
the stability of the market can be damaged
a
l
a
b
On the other hand, naked short selling
when delivery fails on the maturity date.
e
h
t
ⓒ
means that the investors sell without the
Furthermore, when the market instability
possession of the actual shares. It can be
is concentrated, like during the COVID-19
explained as buying the “obligation to
pandemic, short selling may accelerate the
buy back” instead of borrowing. However,
fallofstockpricesandmaximizevolatility
because the seller may struggle to find the
inthestockmarket,addinguncertainty.
necessary number of shares to fulfill the
obligation, this practice of short selling is
regardedasmarketmanipulationinvarious
ShortsinREALLIFE
countries,includingSouthKorea.
Short selling is not restricted to institutional investors.
During February 2020, stock prices of Celltrion and HLB
Retail investors take a small part of the practice at roughly
rocketed to 14 percent and 7 percent respectively. According
one percent. Short selling is not a common practice among
totheKoreaExchange,shortsellingbalancesdepositedinthe
the retail investors because of its settlement period and
companieswere2trillionwon(US$1.7billion)300billionwon
commission price. Choi Byeong-il, professor at the College
(US$ 269million) respectively from Jan. 29. The price soaring
of Business Administration at HUFS said, “Koreans in their
was due to the protesting buying flow of individual investors
20s and 60s show the lowest understanding of the economy,
againstshortsellingorganizations.
compared to other age groups. In Korea, financial education
Are such drastic demonstrations possible in the finance
isnotconductedenoughintheschoolsystem.Itismorelikely
market? The previous protest actually happened with Game
for people to acquire financial knowledge by experiencing it
Stop, an offline video game retail company in the U.S. When
directlyastheybegintheirsociallifeintheir30s.Thelackof
the company was about to go broke due to the COVID-19
understandingoffinanceofrecent20smayleadtoriskycredit
pandemic, Lyon Cohen, a business prospect, appeared to
managementorfinancialdecisions.”
join as the company director. The stock price soared to $31
To prevent investing errors, young individuals need to take
from $20, and triggered a warning by Citron Research, an
severalstepstounderstandthewholeflowofthestockmarket.
online newsletter focusing on the short stock market. Hedge
Understandingconflictinginterestsbetweenshortsellingforces
funds were induced to fill up the shorted stocks ratio up to
andindividualinvestorswillleadreaderstobecome“intelligent
140 percent, which means shorted shares exceeded the actual
investors,”whocanprotecttheirproperties.
stocks number of stock shares. Groups of individual investors
gatheredagainsttheshortsellingforces,whichraisedthestock
price up to $355. Short selling organizations will suffer from
thenumberofpromisedstockstheymustredeem.
Theroleofshortsellinginthemarketplace:bad
However, it seems impossible for such suppression of short
orgood?
selling to take place in Korea. According to Jeong Ui-jeong,
Theoretically, stock short selling plays its role as a stabilizer
President of the Korea Stockholders Alliance, what differs
in the market. If speculative forces abnormally raise the stock
between the U.S. market and Korea, is the operating process
ica
n
ech
T
ar
ⓒ
27
MARCH 2021
F
◀Shortsellingsuppressesoverspeculativeforces.
Principlesofshortselling
R
3
2
▼Shortsellingreducesbubblephenomenon.
1
ⓒ
Investors can sell an overvalued stock first and buy
prices, it could create a bubble; short selling forces
lateratalowerprice.Thisiscalled“shortselling,”
wouldselloutthestocksrecoveringthestockprices.
astrategyusedwhenaninvestorbelievesthatthe
Itwouldbeagreatlosstothespeculativeinvestors
share price will fall. People might ask, “How
whenthepricesfall,whichiswhypricesshould
would an investor sell something he or she
not be raised recklessly, coexisting with short
does not own?” This can be done by two
sellingforces.Thisshowsthewholeprocess
methods: covered short selling and naked
of prevents the bubble phenomenon caused
short selling. Covered short selling means
byshortselling.
that the investors sell shares that were
Shortstocksellingisadouble-edgedsword
borrowed from the shareholders of a target
inthemarketplace,possessingitsownrisks.
company. They are obligated to buy back
Regarding the way of short selling, which
and return the shares to the lenders at a
sellssharesthatdonotbelongtotheseller,
e
c
n
latertime.
the stability of the market can be damaged
a
l
a
b
On the other hand, naked short selling
when delivery fails on the maturity date.
e
h
t
ⓒ
means that the investors sell without the
Furthermore, when the market instability
possession of the actual shares. It can be
is concentrated, like during the COVID-19
explained as buying the “obligation to
pandemic, short selling may accelerate the
buy back” instead of borrowing. However,
fallofstockpricesandmaximizevolatility
because the seller may struggle to find the
inthestockmarket,addinguncertainty.
necessary number of shares to fulfill the
obligation, this practice of short selling is
regardedasmarketmanipulationinvarious
ShortsinREALLIFE
countries,includingSouthKorea.
Short selling is not restricted to institutional investors.
During February 2020, stock prices of Celltrion and HLB
Retail investors take a small part of the practice at roughly
rocketed to 14 percent and 7 percent respectively. According
one percent. Short selling is not a common practice among
totheKoreaExchange,shortsellingbalancesdepositedinthe
the retail investors because of its settlement period and
companieswere2trillionwon(US$1.7billion)300billionwon
commission price. Choi Byeong-il, professor at the College
(US$ 269million) respectively from Jan. 29. The price soaring
of Business Administration at HUFS said, “Koreans in their
was due to the protesting buying flow of individual investors
20s and 60s show the lowest understanding of the economy,
againstshortsellingorganizations.
compared to other age groups. In Korea, financial education
Are such drastic demonstrations possible in the finance
isnotconductedenoughintheschoolsystem.Itismorelikely
market? The previous protest actually happened with Game
for people to acquire financial knowledge by experiencing it
Stop, an offline video game retail company in the U.S. When
directlyastheybegintheirsociallifeintheir30s.Thelackof
the company was about to go broke due to the COVID-19
understandingoffinanceofrecent20smayleadtoriskycredit
pandemic, Lyon Cohen, a business prospect, appeared to
managementorfinancialdecisions.”
join as the company director. The stock price soared to $31
To prevent investing errors, young individuals need to take
from $20, and triggered a warning by Citron Research, an
severalstepstounderstandthewholeflowofthestockmarket.
online newsletter focusing on the short stock market. Hedge
Understandingconflictinginterestsbetweenshortsellingforces
funds were induced to fill up the shorted stocks ratio up to
andindividualinvestorswillleadreaderstobecome“intelligent
140 percent, which means shorted shares exceeded the actual
investors,”whocanprotecttheirproperties.
stocks number of stock shares. Groups of individual investors
gatheredagainsttheshortsellingforces,whichraisedthestock
price up to $355. Short selling organizations will suffer from
thenumberofpromisedstockstheymustredeem.
Theroleofshortsellinginthemarketplace:bad
However, it seems impossible for such suppression of short
orgood?
selling to take place in Korea. According to Jeong Ui-jeong,
Theoretically, stock short selling plays its role as a stabilizer
President of the Korea Stockholders Alliance, what differs
in the market. If speculative forces abnormally raise the stock
between the U.S. market and Korea, is the operating process
ica
n
ech
T
ar
ⓒ
27
MARCH 2021
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