Z. R. HUSZÁR
FINANCE RESEARCH
All research papers are available for download at SSRN and ResearchGate or directly from the papers.
My research objective is to contribute to important regulatory debates, aid investors’ decision making and help old age savings through with financial education and also with private and government pension investments vehicles. Between 2002-2020, I primarily focused on: (1) welfare implications of short selling and securities lending; (2) real estate financing and non-traditional nonbank (FinTech) lenders (RE relevant research papers are under the Real Estate menu tab on the website). During the covid pandemic, I realized the vulnerability of women in the workplace, and the growing concern that elderly will not have sufficient resources, especially women. In my current research work (since 2020) besides short selling and real estate, I am also working on women investment related topics, pension reforms and energy sustainability questions.
While most of the short sale studies focus on the US, Europe and Australia, and conclude that short sellers are important information providers, Asian market studies are not equivocally supportive of short selling. In a large global study (8 years in progress). With my coauthors, Ekkehart Boehmer, Xiaoyan Zhang and Xinran Zhang, we examine the informational role of short sellers in 42 countries using various known short-sale information measures from 2005-2015, including the global financial crisis and the European debt crisis in the sample period. While we show that on average highly shorted stocks, identified highly shorted based on the Days-to-cover ratio, are associated with more negative future returns, we document significant variation in the informativeness of short selling across countries. We attempt to disentangle the country level pricing efficiency and show how country and firm level efficiency is interlinked with the informational role of short sellers. Specifically, we show that the cross-country variation can be explained by regulatory and institutional differences such as uptick-rule, naked short sale ban, and centralized lending. With these results we stress that regulators’ role is key in ensuring that there is an infrastructure and regulatory framework that support short selling in a way to ensure that short selling actively practiced by institutional traders.
The Societal Implication of the Securities Lending Market: A public pension’s perspective, working paper, under review
After the 2008 global financial crisis, institutions have gradually moved from the unsecured interbank lending market to the repo markets to cover their funding needs. At the same time, while the supply of HQLA assets began to shrink with banks’ reduced risk taking and window-dressing, the demand for HQLAs grew with the shift towards derivative clearing via CCPs. This created a new demand for large scale collateral swaps, upgrading low quality assets to high quality fixed income assets in the securities lending market. These market forces and lenders growing awareness to generate alternative income from passive assets through securities lending gave rise to a multi-trillion dollar fixed income segment in the global securities lending market. In this study, with Zorka Simon, we examine the asset pricing implications of securities lending in the primary and secondary market for German treasuries and discuss the negative welfare implications where the costs are likely to borne by the everyday European citizen in terms of reduced future pension income. (2017 IFABS, 2017 FMA, 2017 Netspar International Pension Workshop, 2020 AEA meeting poster session, 2019 SBFC.) (Link to older circulated version)
AN ANALYSIS OF OVER-THE-COUNTER AND CENTRALIZED STOCK LENDING MARKETS, THE JOURNAL OF FINANCIAL MARKETS, 2019
In this unique Japanese short sale study, with Melissa Porras Prado, we address important regulatory questions about the role of centralized versus OTC stocks lending facilities. We show that the centralized lending market can be important in relaxing short sale constraints and liquidity pressure when shorting selling demand is high. Overall, our findings show that an introduction of centralized market as a supporting platform to OTC lending may be beneficial to add flexibility to the market. However, regulators may need to be aware of potential decline in liquidity if they try to force OTC market participants to centralized markets. We find that relatively informed traders prefer the nontransparent OTC trading venue and rather abstain from trading than to move to the centralized market.
While most of the short sale studies focus on the initiation of the short sale trade and document often large negative impact, to fully reveal the profitability and the skills of these traders, the covering, the termination of these trades also should be examined. In this study with Ekkehart Boehmer and Duong X. Truong, we further explore this newly available short sale disclosure data from Japan that allows us for the first time to directly examine short coverings. We show that covering are followed by significant positive returns, which may reverse some of previously documented negative effect of short selling. More importantly, it also shows that short sellers have significant timing skills and not only effectively time the opening of their positions but also the coverings.
THE INFORMATION VALUE OF STOCK LENDING FEES: ARE LENDERS PRICE TAKERS?, 2017, REVIEW OF FINANCE (RoF)
While most of the stock lending market studies focus on the private information from short sellers on the demand side, I explore the information from the supply side with Truong X. Duong, Ruth S. K. Tan and Weina Zhang. We show that institutional lenders are increasingly active in the supply side recent years in the well-developed U.S. stock lending market. Especially large institutional investors (active investors) with vested interest in the stock may reveal private information through lending fees before news announcements. Effectively, we reveal a unique tipping channel among the active institutions where the lenders from the supply side indicate the arrival of negative news on which they cannot trade an actively extract rent from the short sellers who can trade on the information even before the earnings news release. With this study we provide some explanation why short selling spikes often before earnings announcements. (The paper was finalist for the best paper award at the Review of Finance in 2017)
DO SHORT SELLERS EXPLOIT INDUSTRY INFORMATION?, 2017, JOURNAL OF EMPIRICAL FINANCE (JEF) (In the Media)
While most of the short sale studies argue that short sellers trade on firm specific information, I argue in a number of papers that short sellers have resource limitations (capital and skill), thus focusing on some industries at one time could yield to greater profitability. In this study, with Truong X. Duong, Ruth S. K. Tan and Weina Zhang, we show that short sellers exhibit significant industry concentration in the USA. Most of the times, short sellers focus on the finance industry (measured by the concentration of the total capital allocated to short selling at one point), or more complex industries with opaque firms where they can best exploit their advanced information processing skills. In this study, we also address the regulatory question whether short sellers are responsible for distressing the market? Based on long time series data, we find that short sellers can effectively predict industry before the industry distress sets on.
At the time of the global financial crisis, regulators (often due to political pressure) were actively trying to support the market by either forbidding short selling for strategic stocks (for financial stocks, or key industry stocks, or for the index constituents) or by implementing new short sale disclosure regimes where all large short positions had to be disclosed to exchange regulators and sometimes even to the public. With Duong X. Truong and Takeshi Yamada (i.e., the expert and driver for the project with his insight knowledge and connections), we find that mandatory disclosure enforced on short selling has significant adverse effect on the market. We examine the impact of the disclosure policy on pricing efficiency in Japan which was the first country to introduce public disclosure of large short positions in 2008. We find support for Easley et al (2012) by showing that the composition of traders shifted towards more noise trades with the increased transparency. Overall, short sale trading volume declined and prices become more volatile likely as more informed institutional traders withdraw from shorting in Japan.
My dissertation paper was published in the Journal of Financial Economics in 2010 with Ekkehart Boehmer and Bradford D. Jordan. The paper received the FAMA-DFA price as the best paper in the area of Asset Pricing in 2010. This study was the first empirical short shale study which not only concerned with short sellers position but also considered what could be their long position, which are the stocks short sellers really avoid to short. positions. We show that among the easily shortable stocks, those which have very low shorting activity, experience significant positive returns over the next one to six month. These findings reveal that short sellers not only able to identify overvalued stocks and efficiently correct the mispricing in overvalued stocks but are also able to identify undervalued stocks and do not short undervalued stocks, rather they may buy these to combine profitable long and short position in their market neutral portfolios.
In a Hong Kong short sale study, with Darwin Choi, we attempt to directly evaluate the efficacy of regulators in managing short selling. Specifically we examine the pricing implications of the Hong Kong exchange (HKEx) where short selling a stock is allowed only for selected stocks. While regulators claim that the short sale system is “robust” we highlight some challenges and concerns. We suggest that regulators need to carefully pick the list of stocks that the rules apply to (with both Type I and Type II errors in mind) and pay close attention to the updating frequency of the rules. We understand that there are no perfect interventions, but we document evidence that regulators have negative economic impact with their decisions and suggest that more transparency is needed.