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Earnings Surprise and the Relative Information Content of Short Interest

In: Advances In Quantitative Analysis Of Finance And Accounting

Author

Listed:
  • Jose Mercado-Mendez

    (Central Missouri State University, USA)

  • Roger J. Best

    (Central Missouri State University, USA)

  • Ronald W. Best

    (University of West Georgia, USA)

Abstract

Restrictions imposed on short selling provides incentive for these traders to be better informed, leading to the use of short interest data as an information measure. We add to the literature on whether short sellers are, indeed, better informed traders by investigating whether there are changes in short interest near-term to extreme earnings surprises. If short sellers are better informed (or better able to anticipate corporate events), short interest data should reflect noticeable changes in advance of these significant announcements. After controlling for company-specific factors, we find only limited evidence that the average short seller trades with superior information.

Suggested Citation

  • Jose Mercado-Mendez & Roger J. Best & Ronald W. Best, 2006. "Earnings Surprise and the Relative Information Content of Short Interest," World Scientific Book Chapters, in: Cheng-Few Lee (ed.), Advances In Quantitative Analysis Of Finance And Accounting, chapter 6, pages 121-135, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812772824_0006
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