Asymmetric Effects of Long and Short Selling Positions: Evidence from US Stock Markets

This paper investigates the effects of short/long positions on the return volatility of the market using high frequency, intra-day data from 2009 to 2020. We employ an asymmetric EGARCH model and find evidence of high persistence of return volatility. We cover the long periods of increased market turbulence over the decade. We show the time-varying volatility of the US stock market and emphasize the asymmetric effects of positive/negative shocks in the extreme market conditions and the destabilizing effects of short selling activities on the financial markets. Our results provide significant implications for portfolio management, especially for profitable short-selling strategies in turbulent periods.