Economic policy uncertainty and information intermediary: The case of short seller

Yuchen Wang and Xiaoming Wang

Economic Modelling, 2023, vol. 120, issue C

Abstract: We examine the impact of economic policy uncertainty on the trading activity of short sellers, finding an increase in shorting flows of overvalued stocks during periods of high policy uncertainty. After controlling for endogeneity, macroeconomic factors, and different measurements, the results hold; the transaction cost represented by the institutional shareholding ratio moderates the impact of economic policy uncertainty on short sellers. Uncertainty about fiscal policy, taxes, government spending, entitlement programs, and national security are the main reasons for short-flow changes. Furthermore, our paper responds to a recent call by Jiang et al. (2022) for future research on how short sellers trade company shares during periods of high economic and political uncertainty.

Keywords: Short seller; Shorting flow; Economic policy uncertainty; Institutional ownership (search for similar items in EconPapers)
JEL-codes: D80 G10 G20 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322003984

DOI: 10.1016/j.econmod.2022.106161

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