Short Interest and Stock Price Crash Risk

Posted: 19 Apr 2014 Last revised: 21 Aug 2015

See all articles by Jeffrey L. Callen

Jeffrey L. Callen

University of Toronto - Rotman School of Management

Xiaohua Fang

Georgia State University - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: August 3, 2015

Abstract

Using a large sample of U.S. public firms, we find robust evidence that short interest is positively related to one-year ahead stock price crash risk. The evidence is consistent with the view that short sellers are able to ferret out bad news hoarding by managers. Additional findings show that the positive relation between short interest and future crash risk is more salient for firms with weak governance mechanisms, excessive risk-taking behavior, and high information asymmetry between managers and shareholders. Empirical support is provided showing that the relation between short interest and crash risk is driven by bad news hoarding.

Keywords: crash risk; short interest; agency conflict

JEL Classification: G12; G32; G34; D82

Suggested Citation

Callen, Jeffrey L. and Fang, Xiaohua, Short Interest and Stock Price Crash Risk (August 3, 2015). Journal of Banking and Finance, Forthcoming; Rotman School of Management Working Paper No. 2426490. Available at SSRN: https://ssrn.com/abstract=2426490

Jeffrey L. Callen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-5641 (Phone)
416-971-3048 (Fax)

Xiaohua Fang (Contact Author)

Georgia State University - School of Accountancy ( email )

P.O. Box 4050
Atlanta, GA 30302-4050
United States

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