A synthesized model of short selling constraints and their impact on stock returns

This paper presents a synthesized model explaining the returns of short-sale constrained stocks. We combine short-sale constraints that were previously treated individually or in pairs into a more fully specified model. The model is also specified in generally falling versus generally rising markets, and in consideration of relative effects for large/mid-cap versus small/micro-cap firms. There is evidence that a more fully specified model provides additional insight with less factor omission bias than prior models. Beyond that, our results indicate asymmetric pricing differences between least versus most short-sale constrained stocks, sensitive to overall market direction. © 2017, Springer Science+Business Media New York.