Informed Short Selling, Fails-to-Deliver, and Abnormal Returns
62 Pages Posted: 2 Jul 2014 Last revised: 10 Jun 2016
Date Written: May 18, 2016
We find that stocks with fails-to-deliver (FTDs) experience negative abnormal returns that are proportional to their FTD levels. These findings come from both an event study and a portfolio returns analysis using Fama-French factors. Using proprietary data on stock borrow costs, we also show that short sellers of low and high FTD stocks obtain positive estimated profits. Our findings support the hypothesis that FTDs reflect nonbinding short sale constraints which do not restrict informed short selling.
Keywords: abnormal returns; fail-to-deliver; Fama-French; event study; short selling
JEL Classification: G12; G14; G21; G28; K22
Suggested Citation: Suggested Citation