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Short sellers and the failures of financial intermediaries

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  • Bui, Dien Giau
  • Lin, Chih-Yung
  • Chris, Vaike

Abstract

This study examines whether short sellers can predict the failures of financial intermediaries. The sample consists of 2,457 financial intermediaries from 1990 to 2016. First, we show that short interest is positively correlated to the failures of financial intermediaries. Second, we construct two measures of abnormal short interest before a failure and find robust evidence that this interest is positively correlated to the failures. Our empirical results confirm that short sellers do predict the failures in financial intermediaries. Therefore, the trading information from short sellers could be a vital resource for the government to prevent the occurrence of financial instability.

Suggested Citation

  • Bui, Dien Giau & Lin, Chih-Yung & Chris, Vaike, 2019. "Short sellers and the failures of financial intermediaries," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    • Handle: RePEc:eee:ecolet:v:183:y:2019:i:c:28
    DOI: 10.1016/j.econlet.2019.108575
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Short sellers; Short interest; Financial intermediaries; Bank failures; Financial instability;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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