Huge bearish wagers on Mitsubishi Motors Corp. before its surprise tie-up with N

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Huge bearish wagers on Mitsubishi Motors Corp. before its surprise tie-up with Nissan Motor Co. will continue to boost the scandal-hit company’s shares, says one of Japan’s biggest online brokerages. Investors, who had short positions on 36.3 million Mitsubishi Motors shares as of the latest margin-account data for the week ended April 29, will have to buy back the stock after Nissan said it will take a 34 percent stake in the smaller carmaker, according to Matsui Securities Co. Covering the biggest amount of bearish bets against the stock since January 2014 will push prices higher even after shares soared 16 percent on Thursday to 575 yen, above the price of 468.52 yen a share Nissan is paying, the brokerage said. Bids to buy outnumbered offers to sell by about 34 to 1 just before Thursday’s close. “While shares already rose above the offer price, if there are no sellers, the price will have to jump more,” Matsui senior analyst Tomoichiro Kubota said in a phone interview in Tokyo. “We could see shares continue to rise until short-sellers finish covering their positions.” Short sellers bet against shares by borrowing them and selling them, hoping to buy them back later at a lower price. QuickTake Short Selling Mitsubishi Motors tumbled 52 percent this year through May 11 after saying it had manipulated fuel economy data of four minicar models, two of which are supplied to Nissan, and improperly tested other Japan models since 1991. The automaker has posted the biggest loss on the Nikkei 225 Stock Average in 2016. Mitsubishi Motors shares rose 3.3 percent as of 9:30 a.m. in Tokyo on Friday. Source:http://www.bloomberg.com/news/articles/2016-05-12/short-squeeze-seen-boosting-mitsubishi-motors-stock-after-tie-up According to the above article,Analyse similarities, differences between issues in the articles studied and theory learned in class and make a conclusion concerning the application of financial theory in real life for each article.You may need to do additional reseach tounderstand certain terms in the articles. Calculations are encouraged if the article contains data.

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Mitsubishi Motors tumbled 52 percent this year through May 11 after saying it had manipulated fuel economy data of four minicar models, two of which are supplied to Nissan, and improperly tested other Japan models since 1991. The automaker has posted the biggest loss on the Nikkei 225 Stock Average in 2016. So Investors have expected to fall share prices of Mitsubishi Motors more in future.

So Short sellers bet against shares by borrowing them and selling them, hoping to buy them back later at a lower price. But Mitsubishi Motors Corp. has tied-up with Nissan Motor Co. which will boost the company’s shares.

Investors had short positions on 36.3 million Mitsubishi Motors shares as of the latest margin-account data for the week ended April 29, will have to buy the stock to make the delivery. On other hand Nissan also will take a 34 percent stake in the smaller carmaker. So Bids to buy outnumbered offers to sell by about 34 to 1.So the covering the bearish bets against the stock will push prices higher even after shares soared 16 percent on Thursday to 575 yen, above the price of 468.52 yen a share Nissan is paying and if there are no sellers, the price will rise more until short-sellers finish covering their positions.

So here short sellers’ prediction has gone wrong. They have expected to fall shares price of Mitsubishi Motors more in future after reporting of its loss and created more short positions. But Nissan has decided to buy a 34 percent stake in the Mitsubishi Motors. So Obligation of delivery of Mitsubishi Motor’s shares on short sellers and Nissan decision to buy 34 % stake of Mitsubishi Motors has created lot of demand for shares of Mitsubishi Motors and no change in supply of shares which has resulted rise in price of Mitsubishi motors’ share up to 575 yen well above offer price of Nissan of 468.52 yen. This has resulted huge loss to Short sellers.

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