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How are Shorts Informed? Short Sellers, News, and Information ProcessingJoseph EngelbergUniversity of California, San Diego (UCSD) - Rady School of Management Adam V. ReedUniversity of North Carolina (UNC) at Chapel Hill - Finance Area Matthew RinggenbergWashington University in Saint Louis - Olin Business School August 1, 2012 Journal of Financial Economics, Forthcoming Abstract: 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 working papers seriesDate posted: January 13, 2010 ; Last revised: October 9, 2012Suggested CitationContact Information
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