This study fills an important gap in the literature on loss realization aversion. It shows how a ‘sophisticated’ sub-set of investors, namely short-sellers, react to losses. Using daily data on stock lending, we estimate the average price at which short positions were initiated, thus...

The recent sub-prime debacle has brought ‘innovative’ structured credit products such as collateralized debt obligations under severe criticism. The complexity of some structured finance securities and difficulties in understanding their risks has been a common theme. This paper argues that...