Do Short Sellers Exploit Industry Information?

48 Pages Posted: 13 Dec 2015 Last revised: 22 Sep 2018

See all articles by Zsuzsa R. Huszar

Zsuzsa R. Huszar

National University of Singapore ; Central European University

R.S.K. Tan

National University of Singapore

Weina Zhang

Department of Finance, National University of Singapore; National University of Singapore Risk Management Institute

Date Written: October 6, 2016

Abstract

This study provides new evidence about short sellers’ trading strategies by showing that short sellers exploit firm information in combination with industry information in their trades. In industries with the highest aggregate shorted values, the most-shorted stocks earn about 1.535% lower abnormal returns than other highly shorted stocks in less shorted industries over the next six months. These results are likely driven by short sellers’ preference for complex industries with the highest profit potential. We also show that the aggregate shorted value at the industry level is able to predict important industry shifts, such as declines in sales and increased competition. Overall, our results suggest that short sellers help to reduce information complexity and improve economic efficiency at the industry level.

Keywords: Financial Distress, Industry Information, Pricing efficiency, Short selling

JEL Classification: G10, G12, G14

Suggested Citation

Huszar, Zsuzsa R. and Tan, Ruth Seow Kuan and Zhang, Weina, Do Short Sellers Exploit Industry Information? (October 6, 2016). Journal of Empirical Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2590271 or http://dx.doi.org/10.2139/ssrn.2590271

Zsuzsa R. Huszar (Contact Author)

National University of Singapore ( email )

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

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

Ruth Seow Kuan Tan

National University of Singapore ( email )

1 Business Link
Singapore 117592, 117592
Singapore
65-65166265 (Phone)
65-67792083 (Fax)

Weina Zhang

Department of Finance, National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
65168120 (Phone)
67792083 (Fax)

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/108-weina

National University of Singapore Risk Management Institute ( email )

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Singapore, 119613
Singapore

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