A Long and a Short Leg Make for a Wobbly Equilibrium

We provide a model to explain how the interaction between the spot and lending markets for stocks can lead to abrupt changes in short selling activity. Furthermore, rational short sellers may choose to abandon the market even as mispricing widens. We document empirically that the dynamics of short selling are fat tailed and subject to abrupt changes, especially for the stocks that the model identifies as susceptible to such dynamics. (JEL G11, G12, G14, G41)

Publication Details

Journal
American Economic Review
Published
2026-03-31
DOI
https://doi.org/10.1257/aer.20211548
Citations
1
Primary Topic
Financial Markets and Investment Strategies
Type
article
Field-Weighted Citation Impact
0.00
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

A Long and a Short Leg Make for a Wobbly Equilibrium

1 citations
American Economic Review
Financial Markets and Investment Strategies
article

A Long and a Short Leg Make for a Wobbly Equilibrium

article en
1 citations

Abstract

We provide a model to explain how the interaction between the spot and lending markets for stocks can lead to abrupt changes in short selling activity. Furthermore, rational short sellers may choose to abandon the market even as mispricing widens. We document empirically that the dynamics of short selling are fat tailed and subject to abrupt changes, especially for the stocks that the model identifies as susceptible to such dynamics. (JEL G11, G12, G14, G41)

American Economic ReviewVol. 116(4)
Decent work and economic growth
Openalex Percentile: Top 24%
Financial Markets and Investment Strategies
DOISourceOpenAlex
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.

A Long and a Short Leg Make for a Wobbly Equilibrium · American Economic Review (2026) | TGRS Research Map | TGRS