Short Selling and Over‐Optimism: Do Short Sellers Profit on the Australian Stock Exchange?
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
Date Written: August 14, 2013
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: Suggested Citation