Keywords

shorting demand, future stock returns, private information revelation

Abstract

Using proprietary data on stock loan fees and quantities from a large institutional investor, we examine the link between the shorting market and stock prices. Employing a unique identification strategy, we isolate shifts in the supply and demand for shorting. We find that shorting demand is an important predictor of future stock returns: An increase in shorting demand leads to negative abnormal returns of 2.98% in the following month. Second, we show that our results are stronger in environments with less public information flow, suggesting that the shorting market is an important mechanism for private information revelation.

Original Publication Citation

Supply and Demand Shifts in the Shorting Market, 2007, with Lauren Cohen and Christopher Malloy, Journal of Finance, 62, 2061–2096.

Document Type

Peer-Reviewed Article

Publication Date

2006

Publisher

Journal of Finance

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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