Strategic Trading As a Response to Short Sellers

78 Pages Posted: 5 Apr 2019 Last revised: 18 Feb 2021

See all articles by Marco Di Maggio

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Francesco A. Franzoni

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Massimo Massa

INSEAD - Finance

Roberto Tubaldi

BI Norwegian Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 17, 2020

Abstract

We study whether short selling deters the incorporation of positive information. We find a sizeable reduction of positive information impounding before earnings announcements for stocks more exposed to short selling. The price pressure of short sales cannot explain this effect. Rather, we find that investors with positive views slow down their trades when short sellers are also present, consistent with strategic behavior. Furthermore, they break up their buy trades across multiple brokers, suggesting they wish to prevent their information from leaking. The findings suggest that short sellers hinder price discovery when better-informed investors are present in the market.

Keywords: Short selling, Informed trading, Strategic traders, Institutional investors, Market efficiency

JEL Classification: G12, G14, G23

Suggested Citation

Di Maggio, Marco and Franzoni, Francesco A. and Massa, Massimo and Tubaldi, Roberto, Strategic Trading As a Response to Short Sellers (January 17, 2020). Swiss Finance Institute Research Paper No. 19-23, Available at SSRN: https://ssrn.com/abstract=3357801 or http://dx.doi.org/10.2139/ssrn.3357801

Marco Di Maggio

Harvard Business School ( email )

Soldiers Field
Baker Library 265
Boston, MA 02163
United States

HOME PAGE: http://https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Francesco A. Franzoni (Contact Author)

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Roberto Tubaldi

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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