On the importance of fiscal space: Evidence from short sellers during the COVID-19 pandemic

Arbeitspapier

Using the exogenous shock of the COVID-19 pandemic, we study how informed market participants evaluate fiscal space. Short-selling activity shifted upon the onset of the pandemic towards companies with low financial flexibility only in countries with limited fiscal space. Among these companies, short sellers targeted especially those that generate their revenue mainly in the domestic market. These short sellers entered their positions before the market crash, generating thereby a significant abnormal return. These findings support the notion that short sellers bet on the inability of governments with budgetary constraints to provide sufficient stimulus to their economy in times of crises.

Object Details

• ISBN: 978-3-95729-837-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Deutsche Bundesbank Discussion Paper ; No. 29/2021

Classification and Topics

• Classification: Wirtschaft ; Information and Market Efficiency; Event Studies; Insider Trading ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Fiscal Policies and Behavior of Economic Agents: General
• Subject: COVID-19 pandemic ; short selling ; fiscal space ; institutional investors

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Greppmair, Stefan ; Jank, Stephan ; Smajlbegovic, Esad
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/242121
• Last update: 10.03.2025, 11:42 AM CET