Abstract

http://ssrn.com/abstract=1004155
 
 

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Do Short Sellers Trade on Private Information or False Information?


Amiyatosh K. Purnanandam


The Stephen M. Ross School of Business at the University of Michigan

H. Nejat Seyhun


The Stephen M. Ross School of Business at the University of Michigan

May 12, 2011


Abstract:     
We investigate whether short sellers contribute towards informational efficiency of market prices by trading on their private information or destabilize market prices by trading on rumors and false information. We do so by projecting a firm's short-selling activities on contemporaneous trading activities of its insiders - our proxy for the potential availability of private information. We find that short-selling activities are considerably informative about future stock returns when there is a higher likelihood of private information in stocks. Short-sellers also bring considerable additional information to the market, especially for smaller stocks, that is not fully captured by contemporaneous insider trading. Overall, these results suggest that on average short sellers bring informational efficiency to the market rather than destabilize them.

Number of Pages in PDF File: 51

Keywords: Short sell, insider trading

JEL Classification: G14

working papers series


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Date posted: March 25, 2008 ; Last revised: May 15, 2011

Suggested Citation

Purnanandam, Amiyatosh K. and Seyhun, H. Nejat, Do Short Sellers Trade on Private Information or False Information? (May 12, 2011). Available at SSRN: http://ssrn.com/abstract=1004155 or http://dx.doi.org/10.2139/ssrn.1004155

Contact Information

Amiyatosh K. Purnanandam (Contact Author)
The Stephen M. Ross School of Business at the University of Michigan ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
H. Nejat Seyhun
The Stephen M. Ross School of Business at the University of Michigan ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5463 (Phone)
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