Information Leakage from Short Sellers

76 Pages Posted: 13 Feb 2023 Last revised: 1 Apr 2025

See all articles by Fernando Chague

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Bruno Giovannetti

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Bernard Herskovic

University of California, Los Angeles (UCLA) - Anderson School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 10, 2023

Abstract

Using granular data on the entire Brazilian securities lending market merged with all trades in the centralized stock exchange, we identify information leakage from short sellers. Our identification strategy explores trading execution mismatches between short sellers' selling activity in the centralized exchange and borrowing activity in the over-the-counter securities lending market. We document that brokers learn about informed directional bets by intermediating securities lending agreements and leak that information to their clients. We find evidence that the information leakage is intentional and that brokers, clients and short sellers benefit from it. We also study leakage effects on stock prices.

Keywords: short selling, securities lending, brokers, information leakage

JEL Classification: G12, G14, G23, G24

Suggested Citation

Chague, Fernando and Giovannetti, Bruno and Herskovic, Bernard, Information Leakage from Short Sellers (February 10, 2023). Available at SSRN: https://ssrn.com/abstract=4354330 or http://dx.doi.org/10.2139/ssrn.4354330

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474
São Paulo, São Paulo 01332-000
Brazil

HOME PAGE: http://https://sites.google.com/site/fchague/

Bruno Giovannetti

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

Bernard Herskovic (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

Los Angeles, CA 90095-1481
United States

HOME PAGE: http://bernardherskovic.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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