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Shorting The Market

Traders Magazine, December 2002

John A. Byrne Editor

Traders were circulating a disturbing rumor in the days following the World Trade Center attack on September 11: Osama bin Laden and his Al Qaeda network - blamed for the unmerciful act - had earlier shorted some airline and insurance stocks. It was a shocking thought, but was it true? It would take strong evidence to make a convincing case. Where would the trail begin and end? That problem was not at issue in a study of short sellers in the aftermath of 9/11. These short sellers basically had a positive impact on the market, the study concluded. "[Shortsellers] were returning securities en masse to banks and therefore had to be buying in order to make those returns," according to Ed Blount, executive director of The Astec Group, an investment consultancy based in New York. The debate over short selling, an activity which is at record levels, is complicated. So it is important to separate fact from fiction, especially during a period of market turmoil and international crisis. There are many established facts, thankfully, in this month's cover stories, Shorting The Market.

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