How are Shorts Informed? Short Sellers, News, and Information Processing

53 Pages Posted: 13 Jan 2010 Last revised: 9 Oct 2012

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Adam V. Reed

University of North Carolina Kenan-Flagler Business School

Matthew Ringgenberg

University of Utah - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: August 1, 2012

Abstract

We find that a substantial portion of short sellers’ trading advantage comes from their ability to analyze publicly available information. Using a database of short sales combined with a database of news releases, we show that the well-documented negative relation between short sales and future returns is twice as large on news days and four times as large on days with negative news. Further, we find that the most informed short sales are not from market makers but rather from clients, and we find only weak evidence that short sellers anticipate news events. Overall, the evidence suggests that public news provides valuable trading opportunities for short sellers who are skilled information processors.

Keywords: asymmetric information, manipulation, news media, short sales

JEL Classification: G12, G14

Suggested Citation

Engelberg, Joseph and Reed, Adam V. and Ringgenberg, Matthew, How are Shorts Informed? Short Sellers, News, and Information Processing (August 1, 2012). Journal of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1535337 or http://dx.doi.org/10.2139/ssrn.1535337

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Adam V. Reed

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Matthew C. Ringgenberg (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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