Do Short Sellers Use Textual Information? Evidence from Annual Reports

45 Pages Posted: 16 Oct 2020 Last revised: 25 Jan 2022

See all articles by Hung Wan Kot

Hung Wan Kot

University of Macau - Department of Finance and Business Economics

Frank Weikai Li

Singapore Management University - Lee Kong Chian School of Business

Ming Liu

University of Macau - Faculty of Business Administration

K.C. John Wei

Hong Kong Polytechnic University

Date Written: August 11, 2020

Abstract

We examine how short sellers’ use of textual information in annual reports affects their shorting activities. We find that the presence of more negative-related words in annual reports is associated with greater shorting volume. In addition, we find that short selling motivated by textual information negatively predicts stock price reactions after the filing date of annual reports. We further provide evidence that textual information used by short sellers is related to subsequent analyst earnings forecast revisions and changes in firm fundamentals. Our results suggest that textual information in annual reports forms an important part of short sellers’ information advantage.

Keywords: Short selling; Annual reports; Textual analysis; Stock returns; Information environment

JEL Classification: G12; G14; G4; M41; M42

Suggested Citation

Kot, Hung Wan and Li, Frank Weikai and Liu, Ming and Wei, Kuo-Chiang (John), Do Short Sellers Use Textual Information? Evidence from Annual Reports (August 11, 2020). Available at SSRN: https://ssrn.com/abstract=3683086 or http://dx.doi.org/10.2139/ssrn.3683086

Hung Wan Kot

University of Macau - Department of Finance and Business Economics ( email )

Macau

Frank Weikai Li

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Ming Liu

University of Macau - Faculty of Business Administration ( email )

Macau

Kuo-Chiang (John) Wei (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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