Do Short Sellers Use Textual Information? Evidence from Annual Reports

47 Pages Posted: 16 Oct 2020

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 short sellers’ use of textual information in annual reports for shorting activities. We find that more uncertainty and negative words in annual reports are associated with greater abnormal shorting volume. Short selling motivated by textual information negatively predicts stock price reaction around the filing date of 10-K reports. We further provide some evidence that textual information used by short sellers are related to revisions of analysts’ earnings forecasts, changes in firm fundamentals, and increasing crash risk subsequently. 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
110
Abstract Views
762
rank
313,408
PlumX Metrics