Retail Short Selling and Stock Prices

Eric K. Kelley

University of Tennessee; University of Arizona

Paul C. Tetlock

Columbia Business School - Finance and Economics

November 2013

Columbia Business School Research Paper No. 13-70

This study tests asset pricing theories that feature short selling using a large database of retail trading. We find that retail short selling negatively predicts firms' monthly stock returns and news tone, even controlling for overall short selling. Predictability from retail shorting is strongest in stocks with low analyst and media coverage, high idiosyncratic volatility, and high turnover; it does not depend on short sales constraints. Retail buying positively predicts returns in similar types of stocks. These results are consistent with the theory that retail short selling informs market prices, but are inconsistent with alternative theories in which retail short selling is a proxy for sentiment or attention.

Number of Pages in PDF File: 80

Keywords: short selling, retail investor, informed trading, sentiment, attention, return predictability, short sale constraints

JEL Classification: G00, G10, G12, G14

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Date posted: September 11, 2013 ; Last revised: November 26, 2013

Suggested Citation

Kelley, Eric K. and Tetlock, Paul C., Retail Short Selling and Stock Prices (November 2013). Columbia Business School Research Paper No. 13-70. Available at SSRN: http://ssrn.com/abstract=2322830 or http://dx.doi.org/10.2139/ssrn.2322830

Contact Information

Eric K. Kelley
University of Tennessee ( email )
Knoxville, TN 37996
United States
University of Arizona ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-5589 (Phone)
Paul C. Tetlock (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States
212-854-9895 (Fax)
HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

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