Short Selling and Over‐Optimism: Do Short Sellers Profit on the Australian Stock Exchange?

25th Australasian Finance and Banking Conference 2012

Behavioral Finance and Capital Markets Conference, University of South Australia, 2013

The Alpha Interface, Book One, Jeffrey Mishlove, PhD

41 Pages Posted: 28 Aug 2012 Last revised: 20 Sep 2014

See all articles by David R. Gallagher

David R. Gallagher

Bond University

Petko S. Kalev

RoZetta Institute; La Trobe Business School

Eben van Wyk

Aware Superannuation

Date Written: August 14, 2013

Abstract

This paper considers short sellers’ activities when equity analysts are over-optimistic about a stock’s future performance. We use a novel dataset of daily aggregated stock lending information for stocks short sold on the Australian Security Exchange (ASX) during the period of October 2005 to January 2012. We document that there are abnormal profits on stocks short sold based on over-optimistic expectations and these profits are both statistically and economically significant. Our results suggest that short sellers are able to discern between analyst over‐optimism and valid optimism among stocks with a positive skew in analyst forecasts around the consensus.

Keywords: analysts over‐optimism, analysts skew, short selling, short interest

JEL Classification: G14

Suggested Citation

Gallagher, David R. and Kalev, Petko S. and van Wyk, Eben, Short Selling and Over‐Optimism: Do Short Sellers Profit on the Australian Stock Exchange? (August 14, 2013). 25th Australasian Finance and Banking Conference 2012, Behavioral Finance and Capital Markets Conference, University of South Australia, 2013 , The Alpha Interface, Book One, Jeffrey Mishlove, PhD , Available at SSRN: https://ssrn.com/abstract=2136764 or http://dx.doi.org/10.2139/ssrn.2136764

David R. Gallagher

Bond University ( email )

Centre for Data Analytics, Bond Business School
Gold Coast, QLD 4229
Australia

Petko S. Kalev

RoZetta Institute ( email )

Sydney

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

Eben Van Wyk (Contact Author)

Aware Superannuation ( email )

388 George St
Sydney, NSW 2000
Australia

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