How are Shorts Informed? Short Sellers, News, and Information Processing
University of California, San Diego (UCSD) - Rady School of Management
Adam V. Reed
University of North Carolina Kenan-Flagler Business School
Washington University in Saint Louis - Olin Business School
August 1, 2012
Journal of Financial Economics, Forthcoming
We find that a substantial portion of short sellers’ trading advantage comes from their ability to analyze publicly available information. Using a database of short sales combined with a database of news releases, we show that the well-documented negative relation between short sales and future returns is twice as large on news days and four times as large on days with negative news. Further, we find that the most informed short sales are not from market makers but rather from clients, and we find only weak evidence that short sellers anticipate news events. Overall, the evidence suggests that public news provides valuable trading opportunities for short sellers who are skilled information processors.
Number of Pages in PDF File: 53
Keywords: asymmetric information, manipulation, news media, short sales
JEL Classification: G12, G14
Date posted: January 13, 2010 ; Last revised: October 9, 2012
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