The Dissemination of Short-sellers' Information

61 Pages Posted: 20 Jan 2022 Last revised: 27 Nov 2023

See all articles by Paolo Colla

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Paolo Vitale

G. d'Annunzio University - Dipartimento di Economia

Date Written: October 21, 2022

Abstract

We develop a model of private information dissemination by a short-sighted raider within a market for a risky asset. Because the raider is risk-averse and atomistic, her trades do not directly affect prices. In addition, because she is short-sighted, she needs to liquidate her position before the asset price fully reflects her private information. We establish that under these conditions she finds it optimal to publicize her signal in order to move the asset price in the desired direction when her information is either good or very bad. We prove that short-sale constraints affect the raider’s dissemination policy, in that when they are tight she is less likely to disclose her signal when this is negative and when she does so it is because her information is extremely bad. We establish a number of empirical implications of the raider’s dissemination policy which are coherent with the analysis of 263 damning reports published between 2010 and 2021 by a group of 12 dedicated short-bias funds.

Keywords: Short-sightedness, Short-sale Constraints, Information Disclosure

JEL Classification: G14, G11

Suggested Citation

Colla, Paolo and Vitale, Paolo, The Dissemination of Short-sellers' Information (October 21, 2022). Available at SSRN: https://ssrn.com/abstract=4012043 or http://dx.doi.org/10.2139/ssrn.4012043

Paolo Colla

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Paolo Vitale (Contact Author)

G. d'Annunzio University - Dipartimento di Economia ( email )

I-65127 Pescara, Pescara
Italy
+39 085 453 7647 (Phone)
+39 085 453 7565 (Fax)

HOME PAGE: http://www.unich.it/~vitale/

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
73
Abstract Views
500
Rank
580,727
PlumX Metrics