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Laxman Pai, Opalesque Asia:

Institutional investors, especially pension funds, can be short sellers, said a pair of law professors in a forthcoming paper in the Boston University Law Review.

Short selling has the potential to improve the efficiency and fairness of equity markets. Yet institutional investors face both private and regulatory constraints to short selling, they said.

"We advocate that institutional investors engage in more short selling as part of overall net-long equity strategies, such as a leveraged passive equity index combined with an actively managed short position of a size comparable to the amount of leverage," said authors Peter Molk (University of Florida) and Frank Partnoy (University of California, Berkeley).

By engaging in more short selling, institutional allocators like pensions and endowments could better capitalize on negative market information and exert more influence over corporate governance and public policy.

The extent to which pension funds are exposed to short selling is unclear. Although there are some regulatory and private restrictions on pension fund short selling, these restrictions are relatively modest, they said in the research.

Historically, defined benefit public pension plans (with the exception of federal public pension plans, which constitute a relatively small portion of all public pension plans) have faced significant state law restrictions on their investment activities.

These restrictions were ......................

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