Research and publications
Short Selling and the Price Discovery Process
This paper shows that stock prices impound more information when short sellers are more active. First, in a large panel of NYSE-listed stocks, high-frequency informational efficiency of prices improves with greater daily shorting flow. Second, at monthly and annual horizons, more shorting flow accelerates the incorporation of public information into prices. Third, greater shorting flow reduces post-earnings announcement drift for negative earnings surprises. Fourth, we demonstrate that short sellers change their trading around extreme return events in a way that aids price discovery. These results are robust to various econometric methodologies and model specifications. Overall, the results highlight the important role that short sellers play in the price discovery process. A revisited version of this paper was published in the Review of Financial Studies 2012.
Author(s):
Ekkehart Boehmer, Julie Wu
Summary:
This paper shows that stock prices impound more information when short sellers are more active. First, in a large panel of NYSE-listed stocks, high-frequency informational efficiency of prices improves with greater daily shorting flow. Second, at monthly and annual horizons, more shorting flow accelerates the incorporation of public information into prices. Third, greater shorting flow reduces post-earnings announcement drift for negative earnings surprises. Fourth, we demonstrate that short sellers change their trading around extreme return events in a way that aids price discovery. These results are robust to various econometric methodologies and model specifications. Overall, the results highlight the important role that short sellers play in the price discovery process. A revisited version of this paper was published in the Review of Financial Studies 2012.
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Register/Log in| Type : | Working paper |
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| Date : | 05/06/2010 |
| Keywords : |
Business Analysis |
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