Firm-level short selling and the local COVID-19 pandemic: Evidence from China

Jingbin He, Xinru Ma and Qu Wei

Economic Modelling, 2022, vol. 113, issue C

Abstract: Short seller trading behavior attracts much attention, especially when negative shocks occur. Recent literature has focused on the impact of the COVID-19 pandemic, an unprecedented shock, but evidence on short sellers' reactions is quite scarce. This paper investigates how short sellers responded to the local COVID-19 pandemic in China. Empirical results show that greater numbers of newly confirmed COVID-19 cases in listed firms’ headquarters locations are associated with more subsequent short selling of those firms. The results hold after addressing other potential concerns. In addition, the impact of the local COVID-19 pandemic on short selling is stronger for firms with weaker financial conditions, in more vulnerable industries, and with higher risks of a stock price crash. The impact is alleviated after lifting the lockdown restrictions in Wuhan and becomes insignificant in later outbreaks. Overall, our findings support the informational role of short sellers within the context of the COVID-19 pandemic.

Keywords: COVID-19 pandemic; Financial condition; Short selling; Stock price crash risk; Vulnerable industry (search for similar items in EconPapers)
JEL-codes: G00 G14 I10 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:113:y:2022:i:c:s0264999322001420

DOI: 10.1016/j.econmod.2022.105896

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