Keywords

short selling, negative abnormal returns, stock price overreaction

Abstract

We examine short selling in US stocks based on new SEC-mandated data for 2005. There is a tremendous amount of short selling in our sample: short sales represent 24% of NYSE and 31% of Nasdaq share volume. Short sellers increase their trading following positive returns and they correctly predict future negative abnormal returns. These patterns are robust to controlling for voluntary liquidity provision and for opportunistic risk-bearing by short sellers. The results are consistent with short sellers trading on short-term overreaction of stock prices. A trading strategy based on daily short-selling activity generates significant positive returns during the sample period.

Original Publication Citation

Short-Sale Strategies and Return Predictability (previously titled, ”Can Short-sellers Predict Returns? Daily Evidence”), 2009, with Kuan-Hui Lee and Ingrid M. Werner, Review of Financial Studies, 18, 1343–1368.

Document Type

Peer-Reviewed Article

Publication Date

2008

Publisher

Review of Financial Studies

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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