Short Covering Trades

45 Pages Posted: 7 Feb 2015 Last revised: 19 Dec 2016

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; National University of Singapore (NUS) - Risk Management Institute; National University of Singapore (NUS) - Instiute of Real Estate Studies (IRES)

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., Short Covering Trades (Novemeber 14, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. 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

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

National University of Singapore (NUS) - Risk Management Institute ( email )

21 Heng Mui Keng Terrace
Level 4
Singapore, 119613
Singapore

National University of Singapore (NUS) - Instiute of Real Estate Studies (IRES) ( email )

21 Heng Mui Keng Terrace
Singapore, 119613
Singapore

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