| Summary: | This paper investigates the effects of short selling on the price discovery process in Borsa Istanbul (BIST). First, we form a proxy of informational efficiency in the BIST and regress this on the short selling ratio and other control variables. Our results confirm the short selling improves information efficiency. Second, we investigate the behavior of short sellers around extreme negative return days. Our findings are as follows: i) short selling increases before extreme negative returns, ii) short sellers don't exacerbate the price declines in that short selling declines on extreme negative return days, and iii) short selling volume increases in line with the size of the reversal after an extreme negative return.
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