Which shorts are informed?

• Main Authors: BOEHMER, Ekkehart, JONES, Charles M., ZHANG, Xiaoyan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2008
• Subjects: short selling; return predictability; informed trading; Business; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4660; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5659/viewcontent/WhichShortsInformed_pp.pdf
• Institution: Singapore Management University

We construct a long daily panel of short sales using proprietary NYSE order data. From 2000 to 2004, shorting accounts for more than 12.9% of NYSE volume, suggesting that shorting constraints are not widespread. As a group, these short sellers are well informed. Heavily shorted stocks underperform lightly shorted stocks by a risk-adjusted average of 1.16% over the following 20 trading days (15.6% annualized). Institutional nonprogram short sales are the most informative; stocks heavily shorted by institutions underperform by 1.43% the next month (19.6% annualized). The results indicate that, on average, short sellers are important contributors to efficient stock prices.