What do short sellers know?

• Main Authors: BOEHMER, Ekkehart, JONES, Charles M., WU, Juan (Julie), ZHANG, Xiaoyan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: short selling; firm fundamentals news; private information; return decomposition; analysts; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6698; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7697/viewcontent/ShortSellers_2020_sv.pdf
• Institution: Singapore Management University

Using NYSE short-sale order data, we investigate whether short sellers' informational advantage is related to firm earnings and analyst-related events. With a novel decomposition method, we find that while these fundamental event days constitute only 12% of sample days, they account for over 24% of the overall underperformance of heavily shorted stocks. Importantly, short sellers use both public news and private information to anticipate news regarding earnings and analysts. Shorting's predictive ability remains significant after controlling for information in analyst actions and displays no reversal patterns, indicating that short sellers know more than analysts, and the nature of their information is long term.