Short Seller Attention

Abstract

This study exploits a complex information setting of a network of customer-supplier relationships to test whether short sellers pay attention to corporate news to act upon this news across the supply chain. We measure revealed short seller attention by using the link between a customer's news announcement return and the abnormal short selling of its supplier's stock. Results suggest that short sellers are attentive to news of customers to short their suppliers' stocks and that this short selling behavior strengthens with the intensity of SEC Edgar filing searches for both the customer and the supplier. Short sales of suppliers' stocks upon customer news announcements predict the suppliers' negative future stock returns, suggesting that short sellers' attention in a complicated information setting of customer-supplier links allows exploiting profitable trading opportunities.

Keywords: Short Sales, News, Earnings Announcements, Customer-Supplier Relations

JEL Classification: G11, G23, G32