Show Us Your Shorts!
63 Pages Posted: 7 May 2012 Last revised: 17 Jan 2018
Date Written: January 1, 2018
How does greater public disclosure of arbitrage activity and informed trading affect informational efficiency? To answer this, we exploit rule amendments in U.S. securities markets, which increased the frequency of public disclosure of short positions. Higher public disclosure can potentially improve or deteriorate informational efficiency. We find that with more frequent disclosure, short-sellers’ information is incorporated into prices faster, improving informational efficiency. In support of the mechanism driving this result, we document significant market reactions to short interest announcements, suggesting investor learning, and furthermore, we find increases in short-selling activity and reductions in short-sellers’ holding periods with the rule amendments.
Keywords: shorting market, public disclosure, informational efficiency
JEL Classification: G12, G14
Suggested Citation: Suggested Citation