Active Short Selling by Hedge Funds

58 Pages Posted: 12 Sep 2018 Last revised: 21 Jul 2020

See all articles by Ian Appel

Ian Appel

Boston College - Carroll School of Management

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2020

Abstract

We examine the role of strategic communication in public short selling campaigns by hedge funds. Such campaigns are associated with abnormal returns for targets of approximately -7% as well as changes in the behavior of stakeholders (e.g., other short sellers). The effects are driven by campaigns that feature specific allegations rather than general claims of overvaluation. Campaigns are primarily undertaken by activist hedge funds, particularly those that have more experience or employ hostile tactics. Overall, our findings are consistent with models of strategic communication in which investor reputation and the credibility of allegations facilitates the flow of negative information into prices.

Keywords: Activist Hedge Funds, Short Selling, Strategic Communication

JEL Classification: G23, G14

Suggested Citation

Appel, Ian and Fos, Vyacheslav, Active Short Selling by Hedge Funds (June 1, 2020). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 609/2019, 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

Vyacheslav Fos

Boston College - Department of Finance ( email )

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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