Aggregate short selling, commonality, and stock market returns

Andrew Lynch, Biljana Nikolic, Yan, Xuemin (Sterling) and Han Yu

Journal of Financial Markets, 2014, vol. 17, issue C, 199-229

Abstract: Using a comprehensive data set of short-sale transactions, we find strong evidence of commonality in daily shorting flows of individual stocks. More importantly, we find that aggregate shorting forecasts market returns. A one standard deviation increase in daily aggregate shorting is associated with a decrease in market excess return by up to 36bps over the following 10 trading days (9% annualized). In addition, we find modest evidence that short sellers are informed about future aggregate earnings news, macroeconomic news, and investor sentiment. Overall, our results are consistent with short sellers possessing superior short-term market-wide information.

Keywords: Aggregate Short Selling; Market return; Commonality (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:17:y:2014:i:c:p:199-229

DOI: 10.1016/j.finmar.2013.05.001

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