Keywords

short sellers, short interest, future earnings response coefficient (FERC), market efficiency

Abstract

In this paper, 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.

Original Publication Citation

Drake, Michael S. and Myers, James N. and Myers, Linda A. and Stuart, Michael D., Short Sellers and the Informativeness of Stock Prices with Respect to Future Earnings (May 1, 2014). Review of Accounting Studies 20 (2), 2015.

Document Type

Peer-Reviewed Article

Publication Date

2015

Publisher

Review of Accounting Studies

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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Accounting Commons

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