Earnings Surprise and the Relative Information Content of Short Interest

Jose Mercado-Mendez, Roger J. Best and Ronald W. Best
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Jose Mercado-Mendez: Central Missouri State University, USA
Roger J. Best: Central Missouri State University, USA
Ronald W. Best: University of West Georgia, USA

Chapter 6 in Advances in Quantitative Analysis of Finance and Accounting, 2006, pp 121-135 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractRestrictions imposed on short selling provides incentive for these traders to be better informed, leading to the use of short interest data as an information measure. We add to the literature on whether short sellers are, indeed, better informed traders by investigating whether there are changes in short interest near-term to extreme earnings surprises. If short sellers are better informed (or better able to anticipate corporate events), short interest data should reflect noticeable changes in advance of these significant announcements. After controlling for company-specific factors, we find only limited evidence that the average short seller trades with superior information.

Keywords: Earnings Management; Management Compensation; Option Theory and Application; Debt Management and Interest Rate Theory; Portfolio Diversification; Earnings Surprise (search for similar items in EconPapers)
Date: 2006
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