What Do Short Sellers Know?
Review of Finance, Forthcoming
48 Pages Posted: 23 Dec 2012 Last revised: 24 Sep 2019
Date Written: September 1, 2019
Abstract
Using NYSE short-sale order data, we investigate whether short-sellers’ informational advantage is related to firm earnings and analyst-related events. With a novel decomposition method, we find that while these fundamental event days constitute only 12% of sample days, they account for over 24% of the overall underperformance of heavily shorted stocks. Importantly, short-sellers use both public news and private information to anticipate news regarding earnings and analysts. Shorting’s predictive ability remains significant after controlling for information in analyst actions, and displays no reversal patterns, indicating that short-sellers know more than analysts, and the nature of their information is long term.
Keywords: short selling, firm fundamentals news, private information, return decomposition, analysts
JEL Classification: G11, G14, G23
Suggested Citation: Suggested Citation
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