Shorting flows, public disclosure, and market efficiency

Shorting flows remain a significant predictor of negative future stock returns during 2010–2015, when daily short-sale volume data are published in real time. This predictability decays slowly and lasts for a year. Long-term shorting flows are more informative than short-term shorting flows. Indeed,...

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Bibliographic Details
Published in:Journal of financial economics 2020-01, Vol.135 (1), p.191-212
Main Authors: Wang, Xue, Yan, Xuemin (Sterling), Zheng, Lingling
Format: Article
Language:English
Subjects:
Anomalies
Disclosure
News
Prices
Public disclosure
Return predictability
Securities markets
Short sale
Short sales
Short term
Trading
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Summary:Shorting flows remain a significant predictor of negative future stock returns during 2010–2015, when daily short-sale volume data are published in real time. This predictability decays slowly and lasts for a year. Long-term shorting flows are more informative than short-term shorting flows. Indeed, abnormal short-term shorting flows do not predict future returns or anticipate bad news. We find that short sellers exploit prominent anomalies. A comparison with the Regulation SHO data indicates that the predictability is much shorter-term during 2005–2007. Short sellers appear to have shifted from trading on short-term private information to trading on long-term public information that is gradually incorporated into prices.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2019.05.018