The unexpected ways of life: from Bosnia to the Netherlands

An article in the section Meet Your Professor

My name is Esad Smajlbegovic and I originally come from Bosnia-Herzegovina. I currently work as an Assistant Professor in Finance at Erasmus School of Economics. I do not have a life motto, but a sentence I always like to remember is: Whatever we do, we should do it full of passion, love and commitment. I think then we are going to be successful. My message to students is: Do not focus, try to explore.


As a child I was really indecisive of what to become in the future. On the one hand, I wanted to be a professional football player of course. But on the other hand, I really enjoyed programming and I liked computers. So, at the end of the day, I ended up studying Economics in Germany. Especially the first years of my studies were quite interesting and intensive. When I moved from Bosnia to Germany, everything was new: new people, new culture, new language, the whole environment. As a result, I wasn't really performing well as a student. 


Considering my grades, I wasn't really a good student. In the beginning, I was really struggling. I did not think a lot about a career in academia. However, in my last year of my master studies, when I was writing my master thesis together with my supervisor from the econometrics department, I really liked the idea of pursuing questions and studying and answering questions that are related to financial markets or in general to economics. 


Recently, I did research on short selling and its impact on financial markets. If I have to borrow a stock that I do not have the possession of and I sell it in the hope to buy it back again in the future at a lower price, this is actually short selling. Recently I have been working with two co-authors from the German Central Bank. We analysed how transparency and disclosure rules might affect the behaviour of short sellers and whether this has an impact on the market quality particularly in market efficiency. 

‘Whatever we do, we should do it full of passion, love and commitment’

What I find really fascinating about short selling is that it's perceived quite differently from the media and society on the one side and from a research perspective on the other side. When we think about the recent financial crisis or any market downturn we see a lot of speculation in the media that short sellers are the bad guys and that they are manipulating prices to go down. On the other hand, we see in academia and research papers that they actually help and there's some evidence that they help improve market quality and actually improve market efficiency and liquidity of the markets. Especially these differences between society, the media and the literature I find really fascinating. 


What we find is that short sellers have to reveal their name, the name of the stock they short and of course the size of the short position. This regulation actually has a negative impact on the trading of short sellers. Meaning, short sellers stop trading when they have to reveal their short position. At least a large part of short sellers. What we also find is that those investors who stay below the radar, so those who don't want to disclose their positions, are the ones who are most informed in the market. Why is this the case? Well, we could only speculate. One reason why short sellers might stay below the threshold to disclose their short position would be that they want to keep their strategy secret. A second explanation might be that they want to stay in the dark and do not want to be branded as the bad guys. Meaning they want to maintain the connection and the link to the management of the companies.

‘One reason why short sellers might stay below the threshold to disclose their short position would be that they want to keep their strategy secret’

This new transparency regulation of the European Union could make a couple of adjustments. We could change the threshold from which the short seller might publish its short positions, so increase or decrease it. We might include a delay in reporting. Meaning that investors, or short sellers, report their short positions with a delay of one or two weeks for instance. All these things are possible. But ex ante it's very difficult to say whether such changes and adjustments would help improve market efficiency or help avoid the unintended consequences of transparency. An alternative would be that short sellers might still continue reporting their short positions to the regulator. However, the regulator then aggregates this information and publishes this to the market without disclosing the name of the short sellers. This might alleviate the unintended consequences of transparency and therefore the decrease in market efficiency.

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