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Aggregate short selling, commonality, and stock market returns

  • Lynch, Andrew
  • Nikolic, Biljana
  • Yan, Xuemin (Sterling)
  • Yu, Han
Registered author(s):

    Using a comprehensive data set of short-sale transactions, we find strong evidence of commonality in daily shorting flows of individual stocks. More importantly, we find that aggregate shorting forecasts market returns. A one standard deviation increase in daily aggregate shorting is associated with a decrease in market excess return by up to 36bps over the following 10 trading days (9% annualized). In addition, we find modest evidence that short sellers are informed about future aggregate earnings news, macroeconomic news, and investor sentiment. Overall, our results are consistent with short sellers possessing superior short-term market-wide information.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1386418113000141
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    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 17 (2014)
    Issue (Month): C ()
    Pages: 199-229

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    Handle: RePEc:eee:finmar:v:17:y:2014:i:c:p:199-229
    Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

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