Flying Under the Radar: The Effects of Short-Sale Disclosure Rules on Investor Behavior and Stock Prices

71 Pages Posted: 10 Jul 2016 Last revised: 1 Nov 2019

See all articles by Stephan Jank

Stephan Jank

Deutsche Bundesbank; University of Cologne - Centre for Financial Research (CFR)

Christoph Roling

Deutsche Bundesbank

Esad Smajlbegovic

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Multiple version iconThere are 2 versions of this paper

Date Written: October 30, 2019

Abstract

We study how disclosure requirements for large short positions affect investor behavior and security prices. Short positions accumulate just below the applicable disclosure threshold as certain investors never disclose any of their positions. Further tests suggest that this secrecy is part of investors' general policy of avoiding disclosure to protect their unique, profitable investment strategies against reverse engineering by competitors. No evidence supports the notion that short sellers avoid disclosure because of potential adverse effects on securities’ lending fees, risk of recall, or short squeezes. Finally, the evasive behavior by short sellers in response to transparency regulations hampers price discovery.

Keywords: short selling, transparency, investor behavior, stock market efficiency

JEL Classification: G14, G15, G23

Suggested Citation

Jank, Stephan and Roling, Christoph and Smajlbegovic, Esad, Flying Under the Radar: The Effects of Short-Sale Disclosure Rules on Investor Behavior and Stock Prices (October 30, 2019). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2806886 or http://dx.doi.org/10.2139/ssrn.2806886

Stephan Jank (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Christoph Roling

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Esad Smajlbegovic

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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

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