The Good News in Short Interest

46 Pages Posted: 17 May 2009

See all articles by Ekkehart Boehmer

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Zsuzsa R. Huszar

National University of Singapore ; Central European University

Bradford D. Jordan

University of Florida; University of Florida - Department of Finance, Insurance and Real Estate

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 )

Business School
15 Kent Ridge Drive
Singapore, 117592
Singapore
+65 6516 8017 (Phone)
+65 6779 2083 (Fax)

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

Bradford D. Jordan (Contact Author)

University of Florida ( email )

Gainesilee, FL 40506
United States

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

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