Strategic Trading As a Response to Short Sellers

56 Pages Posted: 5 Apr 2019 Last revised: 8 May 2019

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: March 21, 2019


We study empirically informed traders’ reaction to the presence of short sellers in the market. We find that investors with positive views on a stock strategically slow down their trades when short sellers are present in the same stock. Moreover, they purchase larger amounts to take advantage of the price decline induced by short sellers. Furthermore, they break up their buy trades across multiple brokers, suggesting that they wish to hide from the short sellers. This behavior may impact price discovery, as we find a sizeable reduction of positive information impounding for stocks more exposed to short selling during information sensitive periods. The evidence is confirmed exploiting exogenous variation in short interest provided by the Reg SHO Pilot Program. The findings have relevance for the regulatory debate on the market impact of short selling.

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

JEL Classification: G30, M41

Suggested Citation

Di Maggio, Marco and Franzoni, Francesco A. and Massa, Massimo and Tubaldi, Roberto, Strategic Trading As a Response to Short Sellers (March 21, 2019). Swiss Finance Institute Research Paper No. 19-23. Available at SSRN: or

Marco Di Maggio

Harvard Business School ( email )

Soldiers Field
Baker Library 265
Boston, MA 02163
United States

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National Bureau of Economic Research (NBER) ( email )

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Francesco A. Franzoni (Contact Author)

USI Lugano ( email )

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Lugano, 6904

Swiss Finance Institute


Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Massimo Massa

INSEAD - Finance ( email )

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+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Roberto Tubaldi

USI Lugano ( email )


Swiss Finance Institute ( email )

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

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