Information Leakage from Short Sellers

47 Pages Posted: 13 Feb 2023 Last revised: 17 Apr 2023

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)

Date Written: February 10, 2023

Abstract

Directional bets by short sellers typically forecast future returns, but direct evidence of how other investors acquire information from these bets is nearly nonexistent. Using granular data on the entire Brazilian OTC security lending market and all trades in the Brazilian stock exchange, we explore institutional features of these markets to identify information leakage in security lending markets. When informed short sellers borrow securities, their broker learns about these informed directional bets by intermediating security lending contracts, and we document that brokers leak that information to their clients.

Keywords: short selling, security 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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