Public Short Selling by Activist Hedge Funds
56 Pages Posted: 12 Sep 2018 Last revised: 16 Nov 2018
Date Written: November 1, 2018
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
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