Short sellers and the failures of financial intermediaries

Dien Giau Bui, Chih-Yung Lin and Vaike Chris

Economics Letters, 2019, vol. 183, issue C, -

Abstract: This study examines whether short sellers can predict the failures of financial intermediaries. The sample consists of 2,457 financial intermediaries from 1990 to 2016. First, we show that short interest is positively correlated to the failures of financial intermediaries. Second, we construct two measures of abnormal short interest before a failure and find robust evidence that this interest is positively correlated to the failures. Our empirical results confirm that short sellers do predict the failures in financial intermediaries. Therefore, the trading information from short sellers could be a vital resource for the government to prevent the occurrence of financial instability.

Keywords: Short sellers; Short interest; Financial intermediaries; Bank failures; Financial instability (search for similar items in EconPapers)
JEL-codes: G01 G14 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:183:y:2019:i:c:28

DOI: 10.1016/j.econlet.2019.108575

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