PERSISTENT DELIVERY FAILURES: NAKED SHORTING AND ITS IMPACT ON A STOCK’S PRICE

Chris Neuenschwander
Paul Ziegler
Anderson University
ABSTRACT
This study examines the relationship between naked short selling on publicly traded
companies and negative cumulative abnormal return (CAR) incurred by stocks where a short
seller fails to deliver the security needed to close the short position. Past research suggests that
most failures to deliver are related to naked short positions. The study uses failure to deliver data,
published by the Securities and Exchange Commission (SEC), taken from the period of January
through June of 2011 for 4,887 stocks traded on the NYSE, NASDAQ, and AMEX. The stocks are
ranked into groups by the number of days in which the stock experienced various percentages of
delivery failures per its daily trading volume. The rank groups with little or no persistent delivery
failures showed a positive mean CAR, whereas the rank groups with the higher persistent delivery
failures had a negative mean CAR. Using an ANOVA, the analysis finds that those stocks suffering
from a high degree of delivery failure also experienced significantly different CAR than those
which do not. This research supports the idea that naked short selling can have a negative impact
on a stock’s price.