The Information Content of Short Interest: A Natural Experiment
43 Pages Posted: 8 Feb 2002
There are 2 versions of this paper
The Information Content of Short Interest: A Natural Experiment
Date Written: January 2002
Abstract
An increase in the cost of short selling should increase the bearish information content of short interest announcements by driving relatively uninformed short sellers out of the market (Diamond and Verrecchia, 1987). We extend the Diamond and Verrecchia model to include short selling against the box and we test the extended model using a natural experiment based around the Tax Payer Relief Act of 1997 (TRA97). TRA97 made short selling more costly for those shorting against the box. Consistent with the implications of our extended model, this increase in short selling costs strengthened the negative relationship between short interest and subsequent stock performance post-TRA97.
Keywords: Sort Interest, Short Sale Against the Box, Tax Payer Relief Act of 1997
JEL Classification: G10, G14, H29
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Eighths, Sixteenths and Market Depth: Changes in Tick Size and Liquidity Provision on the Nyse
-
Sixteenths: Direct Evidence on Institutional Execution Costs
By Charles M. Jones and Marc L. Lipson
-
Trade Execution Costs on NASDAQ and the NYSE: A Post-Reform Comparison
-
Institutional Trading and Soft Dollars
By Jennifer S. Conrad, Kevin M. Johnson, ...
-
Automated Versus Floor Trading: An Analysis of Execution Costs on the Paris and New York Exchanges
-
Liquidity Beyond the Inside Spread: Measuring and Using Information in the Limit Order Book
By Paul J. Irvine, George J. Benston, ...
-
Execution Costs of Institutional Equity Orders
By Charles M. Jones and Marc L. Lipson
-
Breaking the Eighth: Sixteenths on the New York Stock Exchange
-
The Quotation Behavior of Ecns and NASDAQ Market Makers
By Yusif Simaan, Daniel G. Weaver, ...
