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We don’t need to applaud short sellers but we do need to allow them

Summary:
Another little entry in the well they would say that stakes:Short sellers 'should be applauded' over Burford attackPerhaps in the sense that people putting their money where their mouth is can be seen as admirable. A secretive investment firm has leapt to the defence of short sellers after litigation funder Burford Capital suffered one of the most devastating “short attacks” ever seen in the UK. Gotham City Research, known for its assault on outsourcer Quindell in 2014, has released a note adding to the criticism against Burford and arguing that short sellers “should be applauded for their work”.The report comes days after US short-seller Muddy Waters issued a blistering dossier on Burford, one of the biggest names in the rapidly growing litigation funding industry, in which it took aim at

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Another little entry in the well they would say that stakes:

Short sellers 'should be applauded' over Burford attack

Perhaps in the sense that people putting their money where their mouth is can be seen as admirable.

A secretive investment firm has leapt to the defence of short sellers after litigation funder Burford Capital suffered one of the most devastating “short attacks” ever seen in the UK.

Gotham City Research, known for its assault on outsourcer Quindell in 2014, has released a note adding to the criticism against Burford and arguing that short sellers “should be applauded for their work”.

The report comes days after US short-seller Muddy Waters issued a blistering dossier on Burford, one of the biggest names in the rapidly growing litigation funding industry, in which it took aim at its accounting practices and “laughter-inducing” governance.

That Gotham is also a short seller might lead us to the Mandy Rice Davies line. But there is a more important point here.

As the standard joke goes - laughs are hard to come by in economics - Eugene Fama got the Nobel for showing that the efficient markets hypothesis is true, Lars Peter Hansen for doing the mathematics, Robert Shiller for showing it isn’t true. All on the same day, Tee Hee.

As with many jokes this isn’t quite true - Shiller instead showing what was necessary for the EMH to be true. Which is that all have the opportunity to express their view by trading upon it in that market. Only then are all views, thus all information, incorporated into market prices - the base contention of the EMH, that information is already in market prices and efficiently so.

That is - and Shiller has been most vocal on this point - people must be able to make money from falling prices as well as rising. Only then is the view that prices can or will fall incorporated into those very prices that we wish to be correct.

Applauding short sellers isn’t therefore quite the point. We must allow them so that markets do in fact work. To the point, as Shiller says - as in the housing markets - that we should deliberately construct futures and options markets so that people can be short the market where this is, in the absence of such constructed markets, difficult to impossible. Thus his agitation for derivatives markets in housing.

Short selling is important. No, not moral nor ripe for our approbation for both economics and markets are entirely amoral. Just important, which is why we must allow it.



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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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