Crisis and non-crisis short selling and bank enforcement actions

Leslie Boni, J. Chris Leach and Reilly S. White

Journal of Banking & Finance, 2021, vol. 132, issue C

Abstract: Employing standard informed trading intuition, we develop testable hypotheses regarding short selling before and after bank enforcement action (EA) initiations. For U.S.-listed bank firm data for 2007 to 2012, we find strong support for differentiated short seller activity and skill in crisis versus non-crisis periods. In financial crises, short sellers predominantly position prior to EAs. The EA initiations then act as information-homogenizing and profit-taking events reducing incentives to remain positioned. In contrast, EAs in non-crisis periods appear to serve as wake-up calls that attract additional short selling. Our findings offer potentially important insights for regulators considering short sellers’ reactions to EA announcements in general, during financial crises, and when not experiencing a broad financial crisis.

Keywords: Enforcement actions; Short selling; Short interest; Regulation; Banking (search for similar items in EconPapers)
JEL-codes: G14 G18 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:132:y:2021:i:c:s0378426621001941

DOI: 10.1016/j.jbankfin.2021.106235

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