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Activist Short-Selling

64 Pages Posted: 19 Oct 2016 Last revised: 25 Oct 2017

Wuyang Zhao

University of Texas at Austin

Date Written: October 22, 2017


Regulators and investors are concerned that activist short-sellers who publicly talk down stocks manipulate the market by creating panic. Using a large sample of activist short-selling, I find that activist short-sellers tend to target firms with overvaluation features (that predict future underperformance) and uncertainty features (that indicate imprecision of investors’ information). Higher overvaluation predicts lower long-term returns but the predictive power is weaker for short-term returns. By contrast, higher uncertainty predicts lower short-term returns but not lower long-term returns, implying a gradual reversal. Overall, my findings suggest that activist short-selling is informative, but it does create panic among investors.

Keywords: Activist Short-Selling, Overvaluation, Uncertainty, Determinants, Market Reactions, Panic

JEL Classification: G14, M40

Suggested Citation

Zhao, Wuyang, Activist Short-Selling (October 22, 2017). Available at SSRN: or

Wuyang Zhao (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States
5128262698 (Phone)

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