이 연구에서는 한국 유가증권시장(KOSPI시장)의 일별 투자심리지수, 공매거래(잔고)비율, 유동성 척도를 분석하여, 총 공매도 활동이 과열 또는 침체된 시장을 안정시키는 역할을 하는지, 투자심리와 관련된 공매도 패턴이 주식의 성격에 따라 상이하게 관찰되는지를 살펴보았다. 전체 시장에 대한 시계열 분석 결과, 총 공매거래(잔고)비율이 투자심리지수와 강한 음(-)의 상관관계 갖는 것으로 나타나 공매거래자가 시장 전체에 대해서 추세 추종 거래(trend-chasing trading)를 함을 알 수 있었다. 전체 표본을 주식 특성 포트폴리오로 나누어 투자심리에 따른 공매도 양태를 횡단면적으로 비교 분석한 결과, 성장주, 고변동성 주식, 소형주 포트폴리오의 공매거래비율은 투자심리지수와 음(-)의 관계를 갖는 반면, 가치주, 저변동성 주식, 대형주 포트폴리오의 공매거래비율은 양(+)의 관계를 갖는 것으로 나타났다. 투기적 주식군에서는 투자심리에 대한 추세 추종 거래가, 안정적 주식군에서는 역추세 추종 거래(contrarian trading)가 강함을 알 수 있었다. 이상의 결과로 볼 때, 시장 전체적 관점에서 공매도 활동이 시장 안정 기능을 하지 못하는 것으로 생각되며, 특히 투기적 주식의 경우 투자심리 과열에 의한 고평가가 발생하더라도, 차익 공매거래가 이루어지지 않아 가격왜곡이 발생할 수 있을 것으로 보인다.

This study examined whether short-selling activities play a role in stabilizing the entire stock market, whether the trading pattern of short-seller differs depending on the stock characteristics, and whether such short-selling activities are related to the liquidity of stocks. To investigate the research issues, this study analyzed the correlation between the investment sentiment index, the short-sale ratios (STR and SIR), and stock liquidity indicators, by using daily data of common stocks listed in the KOSPI market from January 2016 to March 2020. A time-series analysis was conducted for the entire market, and a cross-sectional analysis was performed to compare the results of each group which is constructed by dividing the entire sample into speculative and stable stock groups according to the value of the stock characteristics variables (market-to-book value ratio, stock return volatility, and size). By these analyses, I tried to reconcile the trend-following short sale observed at the overall market level and the reverse trend-following (contrarian) short sale observed at the individual stock level, which could not be explained in previous studies.

To measure the investor sentiment, I used the Baker and Wurgler (2006, 2007) methodology and created the daily investor sentiment index which is the first principal component of the five sentiment proxy variables: the KOSPI volatility index (VKOSPI), the ratio of put option trading volume to call option trading volume(PCR), the growth rate of the amount of temporary deposits for stock purchases (Deposit), individual investor trading (buy-sell) imbalance (), and stock turnover rate (TO). To increase the reliability of the index, this study developed the investor sentiment index in a similar manner to Baker and Wurgler (2006, 2007). Short selling activity was measured by two short-sale ratios (STR and SIR), which is calculated daily. STR is the ratio of the total short-selling volume to the total market trading volume, and SIR is the ratio of the total shares in the reported short interest to the total numbers of outstanding shares in the market.

In the time-series analysis of the entire market, the short-sale ratios (STR and SIR) showed a strong negative correlation with the investment sentiment index, indicating that short-sellers engage in trend-chasing trading in the KOSPI market. In a regression analysis that controlled for basis between KOSPI200 spots and futures (Basis), previous market return (MOM), and same-day market return (), the STR and SIR showed a significant negative relationship with the investment sentiment index. It means that when investor sentiment is good, the short-sale transaction and balance in the entire market decrease, and when investor sentiment is depressed, both increases. This result suggest that the short selling activities do not function as a market stabilizer for the entire stock market, consistent with a previous study (Lamont and Stein, 2004) that analyzed the U.S. market.

In the cross-sectional analysis, the STR had a negative (-) relationship with the investor sentiment index for growth stocks, high volatility stocks, and small-cap portfolios, while the STR had a positive (+) relationship with sentiment index for value stocks, low volatility stocks, and large-cap portfolios. The above results were also maintained in multivariate regression analysis. It means that short-seller engage in trend-chasing trading for speculative stocks, while they engage in contrarian trading for stable stocks. These empirical results support the previous research (Stambaugh et al., 2011) showing that for the stocks with high short-selling risk, even if an overpricing occurs due to excessively high sentiment, rational arbitrageurs cannot immediately absorb the demand shock, resulting in large price distortions.

I analyzed that in the stock group with similar characteristic which determinants cause the differences in short selling activity. For value stocks and low volatile stocks, STR values were high in portfolios with high turnover values, and for growth stocks and high volatile stocks, STR values were high in portfolios with low turnover values. It seems that in the stable stock group, short sellers provide liquidity because they sell in the opposite direction of market sentiment (contrarian short selling) for arbitrage purpose, while in the speculative stock group, short sellers consume liquidity, because they sell in the same direction as sentiment (trend-chasing short selling) for speculating purpose.

The contributions of this study are as follows. This study is the first to establish that short selling activities in the Korean stock market have a negative (-) relationship with the market investor sentiment. The finding provides an empirical basis for banning or restricting short selling during times of stock market shock. This study compared and analyzed the relationship between the short selling activities and the investor sentiment for each stock characteristics portfolio and showed that the pattern of short selling differs depending on the characteristics of individual stocks. The finding can reconcile the trend-chasing short sale observed at the overall market level and the contrarian short sale observed at the individual stock level, which could not be explained in previous studies. In addition, the results of this study are expected to provide policy and practical implications in the discussions related to the expansion of stocks allowed for short sale in the future.