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Informed short selling: Do institutional investors anticipate ESG risks?

Author

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  • Lu, Wenjun
  • Luo, Hanlin
  • He, Yiqi
  • He, Shouchao
  • Gao, Ge

Abstract

Can institutional investors anticipate ESG-related risks before public disclosure? Using short position data under EU236 regulation and RepRisk’s ESG incident database, this study examines informational advantages among 586 European listed companies. Employing panel probit models and event studies, we find institutional investors exhibit significant anticipatory behavior prior to ESG incidents. Short-selling probability increases substantially when ESG events are expected within seven trading days. Short positions rise systematically in the five pre-event days, with minimal post-disclosure adjustment. Placebo tests based on bootstrap method confirm these patterns reflect genuine anticipation rather than random variation. Cross-dimensional analysis reveals heterogeneous advantages, with environmental events showing the strongest anticipatory effects. Our findings provide direct evidence of ESG information asymmetry, with implications for disclosure reform and sustainable investment practices.

Suggested Citation

  • Lu, Wenjun & Luo, Hanlin & He, Yiqi & He, Shouchao & Gao, Ge, 2025. "Informed short selling: Do institutional investors anticipate ESG risks?," Finance Research Letters, Elsevier, vol. 86(PC).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pc:s1544612325017532
    DOI: 10.1016/j.frl.2025.108499
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