The Dissemination of Short-sellers' Information
61 Pages Posted: 20 Jan 2022 Last revised: 27 Nov 2023
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: Suggested Citation