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Short sellers and the informativeness of stock prices with respect to future earnings

Author

Listed:
  • Michael S. Drake

    (Brigham Young University)

  • James N. Myers

    (University of Arkansas)

  • Linda A. Myers

    (University of Arkansas)

  • Michael D. Stuart

    (Vanderbilt University)

Abstract

We examine whether short interest improves the informativeness of stock prices with respect to future earnings. We find that short selling strengthens the relation between current returns and future earnings, especially in settings where short sellers are likely to possess an information advantage, such as when a firm’s information environment is weak or when analysts are highly optimistic about future earnings growth. Collectively, our results illustrate the important role that short sellers play in improving the extent to which current stock prices reflect information about future earnings and thus in improving market efficiency.

Suggested Citation

  • Michael S. Drake & James N. Myers & Linda A. Myers & Michael D. Stuart, 2015. "Short sellers and the informativeness of stock prices with respect to future earnings," Review of Accounting Studies, Springer, vol. 20(2), pages 747-774, June.
    • Handle: RePEc:spr:reaccs:v:20:y:2015:i:2:d:10.1007_s11142-014-9313-8
    DOI: 10.1007/s11142-014-9313-8
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    Cited by:

    1. Charles G. McClure & Shawn X. Shi & Edward M. Watts, 2025. "Information acquisition costs and price informativeness: global evidence," Review of Accounting Studies, Springer, vol. 30(3), pages 2468-2507, September.
    2. Paulo Pereira Silva, 2025. "Non-financial disclosure and stock price informativeness: the role of country-level institutional factors," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 39(2), pages 225-258, June.

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    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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