Short Interest, Insider Trading, and Stock Returns

31 Pages Posted: 19 Feb 2009

See all articles by Tak Yan Leung

Tak Yan Leung

City University of Hong Kong (CityUHK) - Department of Accountancy

Oliver M. Rui

China Europe International Business School (CEIBS)

Steven Shuye Wang

School of Business, Renmin University of China

Date Written: February 12, 2009

Abstract

We examine the effects of short selling and the combined effects of two forms of informed trading - short selling and insider trading on stock price movements in the Hong Kong stock market. Short selling in Hong Kong is characterized by a high frequency of transactions. We provide empirical evidence that short-selling transactions carry information that signals a future decrease in the share price. We also find that insider purchasing helps to mitigate the negative impact of short-selling transactions. Our regression results show that the magnitude of abnormal losses is related to the value of the short-selling transaction, the presence of insider purchasing, and whether the security being sold is also an optioned stock.

Keywords: short-selling, insider trading, information asymmetry

JEL Classification: G10, G14

Suggested Citation

Leung, Tak Yan and Rui, Oliver M. and Wang, Steven Shuye, Short Interest, Insider Trading, and Stock Returns (February 12, 2009). Available at SSRN: https://ssrn.com/abstract=1341511 or http://dx.doi.org/10.2139/ssrn.1341511

Tak Yan Leung

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

Steven Shuye Wang

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

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