Short Selling Surrounding Data Breach Announcements
40 Pages Posted: 9 Apr 2020 Last revised: 1 May 2020
Date Written: April 30, 2020
This study examines whether short sellers detect rm-level data breaches. Using the datasets of proprietary daily lending and unique data breach announcements, we investigate whether short selling anticipates corporate data breaches, and whether the short selling ex-ante would benefit investors by improving market quality and price discovery. First, we document that the level of short selling constraints when data breaches are publicly revealed. Both borrowing cost and utilization fee jump. Second, the results of event studies report significantly negative cumulative abnormal returns (CARs) around data breach announcements. Third, on a cross-sectional basis, short-selling activities predict the post-event CARs. Further, we provide evidence that short-selling activities improve market quality and price discovery. Overall, our study provides strong evidence that short sellers exploit prior knowledge of data breaches and help to improve overall market quality.
Keywords: informed trading, short selling, data breach, cumulative abnormal returns (CARs), market quality, price discovery
JEL Classification: G14, K24
Suggested Citation: Suggested Citation