Bears and Numbers: Investigating How Short Sellers Exploit and Affect Earnings-Based Pricing Anomalies

44 Pages Posted: 23 Jun 2005

See all articles by Adam C. Kolasinski

Adam C. Kolasinski

Texas A&M University - Department of Finance

Bing Cao

McKinsey & Co. Inc.

Adam V. Reed

University of North Carolina Kenan-Flagler Business School

Dan S. Dhaliwal

University of Arizona - Department of Accounting

Date Written: July 2007

Abstract

We document that short sellers exploit both post-earnings-announcement drift and the accrual anomaly. In addition, using a unique dataset of shares available for borrowing as of the earnings announcement date, we find that short selling plays an important role in the pricing of accruals: the downside effect of high accruals disappears when at least 6.8% of a firm's shares are available for borrowing by short sellers. Furthermore, we demonstrate that this effect is distinct from that of institutional holdings, which can affect pricing of accruals in ways unrelated to short selling.

Keywords: Short sales, short interest, market efficiency, post earnings announcment drift, accruals

JEL Classification: G28, G12, G14

Suggested Citation

Kolasinski, Adam C. and Cao, Bing and Reed, Adam V. and Dhaliwal, Dan S., Bears and Numbers: Investigating How Short Sellers Exploit and Affect Earnings-Based Pricing Anomalies (July 2007). Available at SSRN: https://ssrn.com/abstract=748506 or http://dx.doi.org/10.2139/ssrn.748506

Adam C. Kolasinski (Contact Author)

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Bing Cao

McKinsey & Co. Inc. ( email )

Konigsallee 60C
K-40027 Dusseldorf, Quebec
Germany

Adam V. Reed

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Dan S. Dhaliwal

University of Arizona - Department of Accounting ( email )

McClelland Hall
PO Box 210108
Tucson, AZ 85721
United States

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