Informed or Speculative: Short Selling Analyst Recommendations

38 Pages Posted: 15 Oct 2008 Last revised: 2 Oct 2009

See all articles by Benjamin M. Blau

Benjamin M. Blau

Utah State University - Huntsman School of Business

Chip Wade

University of Mississippi

Date Written: September 29, 2009

Abstract

While this study finds consistency with the informed front-running hypothesis by documenting abnormal short selling prior to downgrades, results also show abnormal short selling prior to upgrades suggesting that short selling prior to analyst recommendations is more speculative than informed. The short selling patterns around both upgrades and downgrades are remarkably symmetric. However, we report an important asymmetry in the return predictability of short selling. Pre-downgrade short selling is better at predicting negative returns than post-downgrade short selling. The opposite appears true around upgrades. This result indicates that predicting (reacting to) negative news increases (decreases) short sellers’ profitability.

Suggested Citation

Blau, Benjamin M. and Wade, Chip, Informed or Speculative: Short Selling Analyst Recommendations (September 29, 2009). Available at SSRN: https://ssrn.com/abstract=1284539 or http://dx.doi.org/10.2139/ssrn.1284539

Benjamin M. Blau (Contact Author)

Utah State University - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322
United States

Chip Wade

University of Mississippi ( email )

Oxford, MS 38677
United States

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