Short Covering Trades

45 Pages Posted: 7 Feb 2015 Last revised: 28 Feb 2019

See all articles by Ekkehart Boehmer

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business

Truong X. Duong

Iowa State University - Department of Accounting and Finance

Zsuzsa R. Huszar

National University of Singapore ; Central European University

Date Written: Novemeber 14, 2016

Abstract

Short sellers are known to have private information about security prices. Empirical evidence of short selling, however, is based on only half of short sellers’ trading activity; specifically, the opening of the position. Using disclosed large short position data from the Japanese stock market, we provide the first detailed evidence of covering trades and find a positive reaction to short covering that only partially reverses. While these results are consistent with substantial transaction costs for closing large short positions, they also reveal that some short sellers are privately informed about positive future events and have timing ability in covering positions.

Keywords: Short Selling; Short Covering; Informed Trading

JEL Classification: G14

Suggested Citation

Boehmer, Ekkehart and Duong, Truong X. and Huszar, Zsuzsa R. and Huszar, Zsuzsa R., Short Covering Trades (Novemeber 14, 2016). Journal of Financial and Quantitative Analysis (JFQA), 53 (2), 723-748, 2018, Available at SSRN: https://ssrn.com/abstract=2560851 or http://dx.doi.org/10.2139/ssrn.2560851

Ekkehart Boehmer

Singapore Management University - Lee Kong Chian School of Business ( email )

Singapore

Truong X. Duong (Contact Author)

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Zsuzsa R. Huszar

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

National University of Singapore ( email )

Business School
15 Kent Ridge Drive
Singapore, 117592
Singapore
+65 6516 8017 (Phone)
+65 6779 2083 (Fax)

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