Peer Stock Short Interest and Future Returns
47 Pages Posted: 13 Sep 2014 Last revised: 22 Feb 2015
Date Written: February 18, 2015
Abstract
Firm-level monthly short interest is positively and significantly related to the returns of firms that compete in the same product markets. This finding is robust to standard controls and cannot be explained by industry momentum, industry lead-lag relationships, or industry information spillover effects. Short interest also contains information about the fundamentals of competing firms. Trading cost reductions are an important driver for trading a firm’s competitors rather than the firm’s own stocks. Our findings suggest that short sellers’ trades play an important role in the price discovery of competing firms, beyond their direct effects documented previously.
JEL Classification: G14
Suggested Citation: Suggested Citation
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