Robert Johnson, PhD, CFA, CAIA | Source | Chairman and CEO at Economic Index Associates

As world stock markets end a turbulent six months near record highs, investors appear to be betting heavily that economies will recover quickly from the coronavirus crisis, fuelled by zero interest rates and abundant monetary and fiscal stimulus.

“Short-sellers make the markets more complete,” says Robert R. Johnson, Professor of Finance, Heider College of Business at Creighton University in Omaha. “Short-selling allows investors who are bearish on a company’s prospects to take a position, providing more information and liquidity to the markets. Short-sellers often provide valuable ‘price discovery’ to the markets. If short-selling were not allowed, one might argue that market prices would be determined by the ‘crazy optimists.’ Short-selling allows pessimists to weigh in and impact market pricing.”

“One of the biggest problems with President Trump is that he consistently trumpets stock market gains and infers that they are a proxy for the economy,” Robert Johnson, professor of finance at Heider College of Business at Creighton University, said in response to a query from International Business Times. “The reason may be that the market gives an assessment of stock valuation daily while economic conditions are much more nuanced and difficult to gauge.”