The Role of Short Selling in the Korean Stock Market : Review and Implications of Empirical Research

Issues related to the short-selling system in the Korean stock market continue to be debated among academics, individual investors, and financial regulatory authorities. This study comprehensively reviews the major findings of empirical research on short-selling in the Korean stock market and offers policy implications for future research directions on short-selling. Although short-selling studies in Korea exhibit mixed empirical findings, depending on the characteristics of the data used, sample periods, measurement methods of short-selling, selection of related variables, and research design, a large body of previous studies reported that short selling increases the market efficiency and price discovery of overvalued stocks in the Korean stock market. Considering the areas lacking research on short-selling in the Korean stock market, the following research topics are proposed for future research: first, the behavior of arbitrage and hedge trading by short-sellers; second, the information channels of short-sellers; and third, the influence of short-sellers on managerial decision-making in corporate finance.