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Short sales and class-action lawsuits

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  • Blau, Benjamin M.
  • Tew, Philip L.

Abstract

Gande and Lewis (2009) show class-action lawsuit filings are anticipated by investors. In this paper, we examine short-selling activity surrounding lawsuit filings and find that short activity surges in the days before the filing. However, short-selling activity remains significantly high until a few days after the filing. We also find some evidence that both pre- and post-filing short activity can be used to predict the outcome of the filing. In particular, we find that, after controlling for a variety of firm-specific factors, short activity during the filing period increases the likelihood that the lawsuit eventually generates money for the plaintiff.

Suggested Citation

  • Blau, Benjamin M. & Tew, Philip L., 2014. "Short sales and class-action lawsuits," Journal of Financial Markets, Elsevier, vol. 20(C), pages 79-100.
    • Handle: RePEc:eee:finmar:v:20:y:2014:i:c:p:79-100
    DOI: 10.1016/j.finmar.2014.04.002
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    Cited by:

    1. Kim, Taeyeon & Hwang, Hyoseok (David) & Kim, Hyun-Dong, 2023. "Do local investors know more? Evidence from securities class actions," Journal of Banking & Finance, Elsevier, vol. 156(C).
    2. Stivers, Chris & Sun, Licheng & Saha, Sounak, 2024. "Abnormal stock returns and shorting around securities class action lawsuits: The role of pre-filing news releases," Journal of Financial Markets, Elsevier, vol. 67(C).
    3. Greppmair, Stefan & Jank, Stephan & Smajlbegovic, Esad, 2023. "On the importance of fiscal space: Evidence from short sellers during the COVID-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 147(C).
    4. Baig, Ahmed S. & Sabah, Nasim, 2020. "Does short selling affect the clustering of stock prices?," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 270-277.

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    More about this item

    Keywords

    Short sales; Class-action lawsuits; Informed trading; Private information;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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