The impact of short sale disclosure frequency on pricing efficiency

Short sales are beneficial to markets since they tend to provide liquidity and improve pricing efficiency by revealing new information, given that short sellers are generally accepted as informed investors in the finance literature. After the global financial crisis of 2007-2009, media and policymakers blamed short sellers for distressing share prices and many countries introduced new mandatory short sale disclosure procedures.
While the global trend is to enhance market transparency on short sales, Borsa Istanbul reduced their short sale disclosure frequency from twice a day to once a day on 30th of October 2015. This study aims to investigate the effect of frequency of short sale disclosure on pricing efficiency in short and long period lengths, using the disclosure frequency change in Borsa Istanbul on 30th of October 2015 and its effects on shorting demands, returns, volumes, bid ask spreads, turnover ratios and volatilities. The most prominent result of this thesis is that the reduced short sale disclosure frequency decreases the short demand significantly in long period length, while the short sales shift to more informed trading and trend chasing behavior of uninformed traders decreases. The volatilities are affected significantly and positively, volumes and turnover ratios are affected significantly and negatively in the short period lengths consistently to existing literature. At the same time, the negative effect on returns is controversial and results of the long period length are mixed and difficult to interpret.