Informed or speculative: Short selling analyst recommendations

Benjamin Blau () and Chip Wade

Journal of Banking & Finance, 2012, vol. 36, issue 1, 14-25

Abstract: Christophe et al. (2010) find evidence of abnormal short activity prior to analyst downgrades and argue that short sellers may be violating SEC insider-trading laws by trading on information obtained from analysts about upcoming downgrades. However, observing abnormal shorting prior to downgrades is not tantamount to determining that short sellers are trading on tips from analysts unless shorting is abnormally low prior to upgrades. This paper revisits this issue. While we observe abnormal shorting prior to downgrades, we also find markedly higher shorting prior to upgrades. In fact, the short-selling patterns surrounding both downgrades and upgrades are remarkably symmetric indicating that short sellers during the pre-recommendation period are not unusually informed about the direction of upcoming recommendation changes. If anything, our findings indicate that short selling prior to analyst recommendations is more likely speculative than informed.

Keywords: Short selling; Informed trading; Analyst recommendations; Tipping (search for similar items in EconPapers)
JEL-codes: G12 G14 G19 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426611001907
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:1:p:14-25

DOI: 10.1016/j.jbankfin.2011.06.001

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().