Does Short Selling Improve Analyst Forecast Quality?

55 Pages Posted: 14 Dec 2014 Last revised: 23 Mar 2020

See all articles by Yun Ke

Yun Ke

Brock University - Goodman School of Business; University of Texas at El Paso - Department of Accounting & Information Systems

Kin Lo

University of British Columbia (UBC) - Sauder School of Business

Jinfei Sheng

University of California, Irvine - Paul Merage School of Business

Jenny Li Zhang

University of British Columbia - Sauder School of Business

Date Written: March 12, 2020

Abstract

We examine the effect of short selling on analyst forecast quality. Using the removal of the tick test from Regulation SHO, we find that increased ease of short selling improves analyst earnings forecast quality. Examining underlying mechanisms for the improvement, the evidence is consistent with increased incentives for analysts to uncover bad news, and reductions in information asymmetry. In addition, the remaining members of the Russell 3000 also experienced an increase in forecast quality upon the permanent removal of the tick test for all firms. Our paper provides new evidence on the effect of short sellers on analyst behavior.

Keywords: Analyst forecast, short sellers, information environment

Suggested Citation

Ke, Yun and Lo, Kin and Sheng, Jinfei and Zhang, Jenny Li, Does Short Selling Improve Analyst Forecast Quality? (March 12, 2020). Available at SSRN: https://ssrn.com/abstract=2537553 or http://dx.doi.org/10.2139/ssrn.2537553

Yun Ke (Contact Author)

Brock University - Goodman School of Business ( email )

500 Glenridge Avenue
International Business and Strategy
St. Catherine's, Ontario L2S 3A1
Canada

University of Texas at El Paso - Department of Accounting & Information Systems ( email )

University Library - Acquisitions Department
500 West University Avenue
El Paso, TX 79968
United States

Kin Lo

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8430 (Phone)
604-822-9470 (Fax)

HOME PAGE: http://www.sauder.ubc.ca/Faculty/People/Faculty_Members/Lo_Kin

Jinfei Sheng

University of California, Irvine - Paul Merage School of Business ( email )

4291 Pereira Dr
Irvine, CA 92697
United States

HOME PAGE: http://sites.google.com/site/shengjinfei/

Jenny Li Zhang

University of British Columbia - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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