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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

David R. Gallagher

University of Wollongong - Faculty of Business; Capital Markets CRC Limited

Petko S. Kalev

La Trobe Business School ; University of South Australia - School of Commerce

Eben van Wyk

CIMB Securities (Australia) Ltd; PhD Program, Macquarie Graduate School of Management; Centre for Applied Financial Studies, University of South Australia

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). 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

Capital Markets CRC Limited ( email )

GPO Box 970
55 Harrington Street
Sydney, NSW 2001
Australia

University of Wollongong - Faculty of Business ( email )

Building 40A, Level 2
NSW, 2522
Australia

Petko S. Kalev

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

University of South Australia - School of Commerce ( email )

37-44 North Terrace, City West Campus
GPO Box 2471
Adelaide, South Australia 5073
Australia
+61 8 8302 7122 (Phone)
+61 8 8302 0992 (Fax)

HOME PAGE: http://www.unisanet.unisa.edu.au/staff/homepage.asp?Name=Petko.Kalev

Eben Van Wyk (Contact Author)

CIMB Securities (Australia) Ltd ( email )

Sydney
Australia

PhD Program, Macquarie Graduate School of Management ( email )

Centre for Applied Financial Studies, University of South Australia ( email )

37-44 North Terrace, City West Campus
Adelaide, South Australia 5001
Australia

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