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The Good News in Short Interest

46 Pages Posted: 17 May 2009  

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Zsuzsa R. Huszar

National University of Singapore; National University of Singapore (NUS) - Risk Management Institute; National University of Singapore (NUS) - Instiute of Real Estate Studies (IRES)

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 2009

Abstract

We study the information content in monthly short interest using NYSE-, AMEX-, and NASDAQ-listed stocks from 1988 to 2005. We show that stocks with relatively high short interest subsequently experience negative abnormal returns, but the effect can be transient and of debatable economic significance. In contrast, we find that relatively heavily traded stocks with low short interest experience both statistically and economically significant positive abnormal returns. These positive returns are often larger (in absolute value) than the negative returns observed for heavily shorted stocks. Because stocks with greater short interest are priced more accurately, our results suggest that short selling promotes market efficiency. However, we show that positive information associated with low short interest, which is publicly available, is only slowly incorporated into prices, which raises a broader market efficiency issue. Our results also cast doubt on existing theories of the impact of short sale constraints.

Keywords: short sales, short interest, short sale constraints, market efficiency

JEL Classification: G12, G14

Suggested Citation

Boehmer, Ekkehart and Huszar, Zsuzsa R. and Jordan, Bradford D., The Good News in Short Interest (May 15, 2009). Available at SSRN: https://ssrn.com/abstract=1405511 or http://dx.doi.org/10.2139/ssrn.1405511

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Zsuzsa R. Huszar

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

National University of Singapore (NUS) - Risk Management Institute ( email )

21 Heng Mui Keng Terrace
Level 4
Singapore, 119613
Singapore

National University of Singapore (NUS) - Instiute of Real Estate Studies (IRES) ( email )

21 Heng Mui Keng Terrace
Singapore, 119613
Singapore

Bradford D. Jordan (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4887 (Phone)
859-257-9688 (Fax)

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