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Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer? for CLAT 2025 is part of CLAT preparation. The Question and answers have been prepared according to the CLAT exam syllabus. Information about Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for CLAT 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer?.

Solutions for Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for CLAT. Download more important topics, notes, lectures and mock test series for CLAT Exam by signing up for free.

Here you can find the meaning of Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer?, a detailed solution for Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer? has been provided alongside types of Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer? theory, EduRev gives you an ample number of questions to practice Direction: Kindly read the passage carefully and answer the questions given below.The scathing report by Hindenburg Research on the Adani Group has put the spotlight on short selling, a practice nearly as old as the stock market. Regulators around the world, the courts, investing masses...everybody has once again started taking notice of short sellers aka the misfits in the investing world. Why? Because, in the conventional investing world, the buy and hold philosophy is heavily marketed as the cure for all investment maladies, and everybody expects asset prices to only rise. So, swimming against the tide by selling something first, contrary to buying first, brings its share of controversies. This could be why short sellers are seen as outcasts as they bet on asset prices going down! But for every Warren Buffett, or Rakesh Jhunjhunwala in the long only investment world, there would be a Jim Chanos or George Soros — like a true bear smacking its lips — as they seek out yet another security whose shares, they believe to be overvalued, whether by exuberance or fraud or simply based on technical. Here is a lowdown on short selling, how and why investors do it, the pros and cons, local and global perspective, and much more. Short selling, or shorting, is a tricky concept primarily because we are not used to shorting in our day-to-day transactions. Be it groceries, apparel, real estate, eating out, travel et c., we buy it first. The current price, subconsciously, is held out to be right. So, buying first is a highly intuitive transaction. To generate profit in investments, buying first means the entry price has to be lower than the exit price. However, in a short sale, the transactions are carried out in the exact opposite direction i.e., to sell first and buy later. For instance, you first sell a security for 100 and then buy it for 80, pocketing 20 profit (pre-tax and charges).Equity short sellers typically use one or more of the following approaches to identify targets they feel trade at higher prices than they should. Fundamental analysis: Analysing a company’s financials helps them determine if its stock may be a candidate for a decline in price. An impactful change in fundamentals warrants such a stance. Technical analysis: Patterns in a stock’s price movement help determine if the stock is on the cusp of a downtrend. Technical based shorting is practised every day by traders in the spot market or by using derivative instruments. Typically, technical short sellers use scenarios such as selling a pullback in a downtrend, entering within a trading range and waiting for a breakdown, or selling into an active decline. Thematic research: This approach involves betting against companies whose business models or technologies are outdated and thus face implosion. A popular example here is the large institutional short selling of the shares of GameStop, which backfired in 2021. Forensic short selling: Spotting cooked up Balance sheets or outright frauds comes under this category. Some of the world’s most astonishing frauds have come to light, thanks to such short sellers. Such frauds usually took place in companies involved in the hottest sectors of those times.Regulated short selling is legal practice. Securities market regulators in most countries, in particular, in all developed securities markets, recognise it. The International Organisation of Securities Commissions (IOSCO) reviewed short selling and recommended transparency, rather than prohibiting it. Short selling can be effective under a few scenarios but the sword can cut both ways and be counterproductive too.Q.Which of the following provides additional support for the case in favor of short selling as outlined in the passage?a)Highlighting that short selling is a contentious practice opposing the buy and hold philosophy.b)Noting that short sellers employ various methods, including fundamental and technical analysis, thematic research, and forensic analysis, to pinpoint shorting opportunities.c)Confirming that short selling is legally acknowledged as a valid practice by securities market regulators in many nations.d)Emphasizing that while short selling can yield positive results in specific circumstances, it can also have adverse consequences.Correct answer is option 'B'. Can you explain this answer? tests, examples and also practice CLAT tests.