Bears and Numbers: Investigating How Short Sellers Exploit and Affect Earnings-Based Pricing Anomalies
44 Pages Posted: 23 Jun 2005
Date Written: July 2007
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: Suggested Citation