Short selling and the rounding of analysts’ forecasts

Hae Mi Choi

Finance Research Letters, 2018, vol. 25, issue C, 47-54

Abstract: This paper examines the causal effect of short selling on analyst forecast precision by exploiting a regulatory change in short-sale constraints (Regulation SHO) as a natural experiment. I find that short selling increases analysts’ rounding of forecasts, which indicates that analysts allocate less effort to gathering precise information on firms with downward price pressure. In the cross-section, the effect of short selling on analyst forecast precision is stronger for firms with more firm-specific information and firms with low levels of institutional holdings.

Keywords: Short selling; Regulation SHO; Rounding; Earnings forecasts; Analysts (search for similar items in EconPapers)
JEL-codes: G10 G14 M40 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:25:y:2018:i:c:p:47-54

DOI: 10.1016/j.frl.2017.10.001

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