Strategic Trading As a Response to Short Sellers

69 Pages Posted: 5 Apr 2019 Last revised: 8 Jun 2020

See all articles by Marco Di Maggio

Marco Di Maggio

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

Francesco A. Franzoni

USI Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Massimo Massa

INSEAD - Finance

Roberto Tubaldi

USI Lugano; Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: January 17, 2020

Abstract

We study empirically 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 from short selling cannot explain this effect. Rather, consistent with strategic behavior, investors with positive views slow down their trades when short sellers are also present. Furthermore, they break up their buy trades across multiple brokers, suggesting they wish to prevent their information from leaking. The findings suggest that short selling can hinder price discovery when investors receive different information signals.

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)

USI Lugano ( email )

Via G. Buffi 13
Lugano, 6904
Switzerland

Swiss Finance Institute

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

USI Lugano ( email )

Lugano
Switzerland

Swiss Finance Institute ( email )

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

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