Do Short Sale Transactions Precede Bad News Events?
University of Mannheim - Accounting and Taxation
Scott A. Richardson
AQR Capital Management, LLC; London Business School
A. Irem Tuna
London Business School
Do short sale transactions precede bad news events? Not recently. This paper examines short sale transactions around significant news events. Using a novel and comprehensive dataset covering daily short sale transactions for 4,193 securities on the New York Stock Exchange for the period April 1, 2004 through March 31, 2005, we find no evidence that short sale transactions are concentrated prior to bad news events. This challenges prior research that has found short sale transactions have tended to precede stock price declines. Additional analysis reveals that there is no reliable evidence of daily changes in short sales transactions leading daily stock returns, inconsistent with the notion that short sale transactions (at least in the aggregate) are based on private information.
Number of Pages in PDF File: 45
Keywords: short selling, sophisticated investors, management forecasts, earnings announcements
JEL Classification: G10, G12, M41, M43
Date posted: May 13, 2005