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How are shorts informed?

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Author Info

  • Engelberg, Joseph E.
  • Reed, Adam V.
  • Ringgenberg, Matthew C.

Abstract

We find that a substantial portion of short sellers' trading advantage comes from their ability to analyze publicly available information. Using a database of short sales combined with a database of news releases, we show that the well-documented negative relation between short sales and future returns is twice as large on news days and four times as large on days with negative news. Further, we find that the most informed short sales are not from market makers but rather from clients, and we find only weak evidence that short sellers anticipate news events. Overall, the evidence suggests that public news provides valuable trading opportunities for short sellers who are skilled information processors.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 105 (2012)
Issue (Month): 2 ()
Pages: 260-278

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Handle: RePEc:eee:jfinec:v:105:y:2012:i:2:p:260-278

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Asymmetric information; Manipulation; News media; Short sales;

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References

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Citations

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Cited by:
  1. Blau, Benjamin M. & Wade, Chip, 2012. "Informed or speculative: Short selling analyst recommendations," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 14-25.
  2. Delisle, R. Jared & Lee, Bong Soo & Mauck, Nathan, 2012. "The dynamic relation between short sellers, option traders, and aggregate returns," MPRA Paper 42566, University Library of Munich, Germany.
  3. Robert F. Engle & Martin Klint Hansen & Asger Lunde, 2012. "And Now, The Rest of the News: Volatility and Firm Specific News Arrival," CREATES Research Papers 2012-56, School of Economics and Management, University of Aarhus.
  4. Bruno Strulovici & Darrell Duffie, 2009. "Capital Mobility and Asset Pricing," 2009 Meeting Papers 87, Society for Economic Dynamics.
  5. Benjamin Blau, 2013. "Informed short sales and option introductions," Annals of Finance, Springer, vol. 9(3), pages 365-382, August.
  6. Benjamin Blau & Chip Wade, 2013. "Comparing the information in short sales and put options," Review of Quantitative Finance and Accounting, Springer, vol. 41(3), pages 567-583, October.
  7. Fernando D. Chague & Rodrigo De-Losso, Alan De Genaro, Bruno C. Giovannetti, 2013. "Short Selling and Inside Information," Working Papers, Department of Economics 2013_06, University of São Paulo (FEA-USP).
  8. Alexander Ljungqvist & Wenlan Qian, 2014. "How Constraining Are Limits to Arbitrage? Evidence from a Recent Financial Innovation," NBER Working Papers 19834, National Bureau of Economic Research, Inc.
  9. Fabrizio Lillo & Salvatore Miccich\`e & Michele Tumminello & Jyrki Piilo & Rosario Nunzio Mantegna, 2012. "How news affect the trading behavior of different categories of investors in a financial market," Papers 1207.3300, arXiv.org.
  10. Blau, Benjamin M. & Fuller, Kathleen P. & Van Ness, Robert A., 2011. "Short selling around dividend announcements and ex-dividend days," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 628-639, June.
  11. Henk Berkman & Michael McKenzie & Patrick Verwijmeren, 2013. "Hole in the Wall: Informed Short Selling ahead of Private Placements," Tinbergen Institute Discussion Papers 13-153/IV/62, Tinbergen Institute.

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