Public Short Selling by Activist Hedge Funds
55 Pages Posted: 12 Sep 2018 Last revised: 3 Feb 2019
Date Written: February 1, 2019
Using a hand-collected sample of 290 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."
Keywords: Activist Hedge Funds, Short Selling
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