How does going short make market more efficient?

[Zoot Allures]

Going short is betting a stock will drop



The Tesla collapse is a good example. Hedge fund owners have bet the price was a bubble and have cleaned up

But how does betting against a stock actually help the economy as that is the reason the stock market exists?

 

[jeff2]

Going short is betting a stock will drop



The Tesla collapse is a good example. Hedge fund owners have bet the price was a bubble and have cleaned up

But how does betting against a stock actually help the economy as that is the reason the stock market exists?

Not sure about the economy but it can make the stock market more efficient. For example, Muddy Waters called out Sino-Forest for being a phony company. Turned out they had no trees. The books were cooked. Ernst & Young were not doing their job.

 

[HungSowel]

Any activity including shorts adds to market liquidity and price discovery. A lot of shenanigans happen in illiquid markets.

 

[Rukos_48]

Also prevents bad players from being in business and incentivize bringing down those bad business models. Doesn’t mean fraud always but lets say a bad ceo.