Department of Finance Working Papers

Document Type

Unpublished Paper

Publication Date



We study persistent failures to deliver (fails) for insight into naked short sellers’ trading strategies, their ability to profit from their trades, and the market’s reaction to information about their activities. Contrary to recent claims that naked short sellers are momentum traders who drive down stock prices, we find that naked short sellers target stocks that experience positive returns and that returns are generally positive for several days following their trades. Thus, persistent fails suggest that naked short sellers are contrarian investors who find it difficult to earn consistent profits under the rules of Regulation SHO. The market tends to react positively when firms are added to the failures to deliver threshold lists, which we argue is indicative of increased naked short selling.


This working paper has now been published. It is available here : Naked Short Selling and Market Returns