What Do Short Sellers Know?

What Do Short Sellers Know?

Abstract Using NYSE short-sale order data, we investigate whether short sellers’ informational advantage is related to firm earnings and analyst-related events. With a novel decomposition method, we find that while these fundamental event days constitute only 12% of sample days, they account for ove...

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Bibliographic Details
Published in:Review of Finance Vol. 24; no. 6; pp. 1203 - 1235
Main Authors: Boehmer, Ekkehart, Jones, Charles M, Wu, Juan (Julie), Zhang, Xiaoyan
Format: Journal Article
Language:English
Published: Oxford University Press 01-11-2020
Subjects:
Private information
G11
Firm fundamentals news
G23
Short selling
G14
Analysts
Return decomposition
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Summary:Abstract Using NYSE short-sale order data, we investigate whether short sellers’ informational advantage is related to firm earnings and analyst-related events. With a novel decomposition method, we find that while these fundamental event days constitute only 12% of sample days, they account for over 24% of the overall underperformance of heavily shorted stocks. Importantly, short sellers use both public news and private information to anticipate news regarding earnings and analysts. Shorting’s predictive ability remains significant after controlling for information in analyst actions and displays no reversal patterns, indicating that short sellers know more than analysts, and the nature of their information is long term.
ISSN:1572-3097
1573-692X
1875-824X
DOI:10.1093/rof/rfaa008