Public Short Selling by Activist Hedge Funds

56 Pages Posted: 12 Sep 2018 Last revised: 16 Nov 2018

See all articles by Ian Appel

Ian Appel

Boston College - Carroll School of Management

Jordan Bulka

Boston College - Carroll School of Management

Vyacheslav Fos

Boston College - Department of Finance

Date Written: November 1, 2018

Abstract

Using a hand-collected sample of 280 public short selling campaigns, we show that voluntary disclosure of short positions by activist hedge funds has increased significantly in the last decade. Targets of short campaigns experience abnormal returns of approximately -7% around the announcement date. Campaigns are also associated with changes in the behavior of other stakeholders (e.g., litigation) that potentially harm targets. Both changes in targets' valuations and stakeholder behavior are not explained by changes in short interest, suggesting that public short campaigns differ from non-public short sales. We consider two economic mechanisms that potentially explain this behavior: information acquisition synergies and the ability to engage in ``short investor activism.'' Finally, we undertake a joint analysis of activists' long and short positions and find that their aggregate effect on the shareholders of targets is indistinguishable from zero. The results highlight the tension between the contribution of activist hedge funds to economic and price efficiency and their effects on targets' shareholders.

Keywords: Activist Hedge Funds, Short Selling

Suggested Citation

Appel, Ian and Bulka, Jordan and Fos, Vyacheslav, Public Short Selling by Activist Hedge Funds (November 1, 2018). Available at SSRN: https://ssrn.com/abstract=3242516 or http://dx.doi.org/10.2139/ssrn.3242516

Ian Appel (Contact Author)

Boston College - Carroll School of Management ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Jordan Bulka

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Vyacheslav Fos

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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