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Competition of the informed: Does the presence of short sellers affect insider selling?

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  • Massa, Massimo
  • Qian, Wenlan
  • Xu, Weibiao
  • Zhang, Hong

Abstract

We study how the presence of short sellers affects the incentives of the insiders to trade on negative information. We show it induces insiders to sell more (shares from their existing stakes) and trade faster to preempt the potential competition from short sellers. An experiment and instrumental variable analysis confirm this causal relationship. The effects are stronger for “opportunistic” (i.e., more informed) insider trades and when short sellers׳ attention is high. Return predictability of insider sales only occurs in stocks with high short-selling potential, suggesting that short sellers indirectly enhance the speed of information dissemination by accelerating trading by insiders.

Suggested Citation

  • Massa, Massimo & Qian, Wenlan & Xu, Weibiao & Zhang, Hong, 2015. "Competition of the informed: Does the presence of short sellers affect insider selling?," Journal of Financial Economics, Elsevier, vol. 118(2), pages 268-288.
    • Handle: RePEc:eee:jfinec:v:118:y:2015:i:2:p:268-288
    DOI: 10.1016/j.jfineco.2015.08.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Short selling; Insider trading; Informed trader; Market efficiency;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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