Publicizing Private Information
58 Pages Posted: 7 May 2012 Last revised: 13 Jun 2018
Date Written: June 12, 2018
How does greater public disclosure of arbitrage activity and informed trading affect price efficiency? To answer this, we exploit rule amendments in U.S. securities mar- kets, which increased the frequency of public disclosure of short positions. Higher public disclosure can hurt the production of information and deteriorate efficiency, or it can be beneficial by helping short-sellers diffuse their information faster. With more frequent disclosure, information encapsulated within short interest is incorporated into prices faster, improving price efficiency. Furthermore, we find important reductions in short-sellers’ horizon risk, and increases in short-sales with the rule amendments.
Keywords: shorting market, public disclosure, price efficiency
JEL Classification: G12, G14
Suggested Citation: Suggested Citation