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Strategic trading as a response to short sellers

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  • Di Maggio, Marco
  • Franzoni, Francesco
  • Massa, Massimo
  • Tubaldi, Roberto

Abstract

We examine whether the strategic response to short selling by other informed investors decelerates the incorporation of positive information. We find a sizeable reduction of positive information impounding before earnings announcements for stocks more exposed to short selling. Consistent with strategic behavior, we find that investors with positive views slow down their trades when short sellers are also present. Furthermore, they break up their buy trades across multiple brokers, suggesting they wish to prevent a price impact. Thus, the strategic reaction to short selling appears to have implications for information impounding before public information releases.

Suggested Citation

  • Di Maggio, Marco & Franzoni, Francesco & Massa, Massimo & Tubaldi, Roberto, 2024. "Strategic trading as a response to short sellers," Journal of Financial Markets, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:finmar:v:69:y:2024:i:c:s1386418124000296
    DOI: 10.1016/j.finmar.2024.100911
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    More about this item

    Keywords

    Short selling; Informed trading; Strategic traders; Institutional investors; Market efficiency;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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