Which Shorts are Informed?
EDHEC Business School
Charles M. Jones
Columbia Business School - Finance and Economics
Purdue University - Krannert School of Management
February 4, 2007
AFA 2007 Chicago Meetings Paper
We construct a long daily panel of short sales using proprietary NYSE order data. During 2000-2004, shorting accounts for more than 12.9% of NYSE volume, suggesting that short-sale constraints are not widespread. As a group, these short sellers are quite well-informed. Heavily shorted stocks underperform lightly shorted stocks by a risk-adjusted average of 1.16% over the following 20 trading days (15.6% annualized). Institutional non-program short sales are the most informative; stocks heavily shorted by institutions underperform by 1.43% the next month (19.6% annualized). The results indicate that, on average, short sellers are important contributors to efficient stock prices.
Number of Pages in PDF File: 48
Keywords: short selling, return predictability, informed trading
JEL Classification: G12, G14working papers series
Date posted: March 15, 2006
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