Do short sellers exploit industry information?

Zsuzsa R. Huszár, Ruth S.K. Tan and Weina Zhang

Journal of Empirical Finance, 2017, vol. 41, issue C, 118-139

Abstract: This study provides new evidence about short sellers' trading strategies by showing that short sellers exploit firm information in combination with industry information in their trades. In industries with the highest aggregate shorted values, the most-shorted stocks earn about 1.535% lower abnormal returns than other highly shorted stocks in less shorted industries over the next six months. These results are likely driven by short sellers’ preference for complex industries with the highest profit potential. We also show that the aggregate shorted value at the industry level is able to predict important industry shifts, such as declines in sales and increased competition. Overall, our results suggest that short sellers help to reduce information complexity and improve economic efficiency at the industry level.

Keywords: Industry information; Industry restructuring; Pricing efficiency; Short selling (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:41:y:2017:i:c:p:118-139

DOI: 10.1016/j.jempfin.2016.10.001

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