53 Pages Posted: 13 Jan 2010 Last revised: 9 Oct 2012
Date Written: August 1, 2012
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: 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