Retail Short Selling and Stock Prices
Eric K. Kelley
University of Arizona
Paul C. Tetlock
Columbia Business School - Finance and Economics
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, G14working papers series
Date posted: September 11, 2013 ; Last revised: November 26, 2013
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