Could Short Selling Make Financial Markets Tumble?
) (U. F. R. de Sciences à conomiques, Gestion, Mathématiques et Informatique, CNRS UMR7536 and Université Paris X-Nanterre, 92001 Nanterre Cedex, France; Laboratoire de Physique de la Matière Condensée, CNRS UMR6622 and Université de Nice-Sophia Antipolis, 06108 Nice Cedex 2, France) Abstract It is suggested to consider long term trends of financial markets as a growth phenomenon. The question is what conditions are needed for a long term sustainable growth or contraction in a financial market? The paper discusses the role of traditional market players of long only mutual funds versus hedge funds which take both short and long positions. It will be argued that financial markets since their very origins and only till very recently, have been in a state of “broken symmetry” which favored long term growth instead of contraction. The reason for this “broken symmetry” in a long term “bull phase” is the historical almost complete dominance by long only players in financial markets. Only
