earticle

영어

This paper investigates the impact of market makers’ short selling, focusing on the single-stock futures (SSFs) market in Korea during the short-selling ban (March to April 2021), when only market makers were allowed to sell the underlying stocks short. Employing advanced machinelearning techniques to distinguish between heavy and light short sellers among market makers and accurately estimate propensity scores, we apply overlap weighting to control for confounding bias in many market-microstructure variables. We found that short selling by SSFs market makers meaningfully improved liquidity and price efficiency in the futures market. These results were confirmed by both the overlap weighting method and conventional panel-data analysis; a surprising result given a fairly restrictive short-selling environment. However, the short selling did not reduce the backwardation effect in the spot market, indicating its positive impact was limited to the futures market. Overall, the regulatory restriction seemed to prevent SSFs market makers from selling short sufficiently to realize the benefits of short selling. As the first paper examining the role of SSFs market makers’ short selling, our findings highlight the need for open-minded short-selling regulations that promote liquidity and market efficiency, while minimizing the risk of market and political abuses.