Do Short Sellers Use Textual Information? Evidence from Annual Reports
45 Pages Posted: 16 Oct 2020 Last revised: 25 Jan 2022
Date Written: August 11, 2020
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: Suggested Citation