Which Shorts Are Informed

By Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang. 2008

886 citations recorded by the source corpus.

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, sug- gesting 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 re- sults indicate that, on average, short sellers are important contributors to efficient stock prices. THROUGHOUT THE FINANCIAL ECONOMICS LITERATURE, short sellers occupy an exalted place in the pantheon of investors as rational, informed market participants who act to keep prices in line. Theoreticians often generate a divergence be- tween prices and fundamentals by building models that prohibit or constrain short sellers (e.g., Miller (1977), Harrison and Kreps (1978), Duffie, Garleanu, and Pedersen (2002), Hong, Scheinkman, and Xiong (2006)). Empirical evidence uniformly indicates that when short sale constraints are relaxed, overvalua- tions become less severe, suggesting that short sellers move prices toward fun- damentals (examples include Lamont and Thaler (2003), Danielsen and Sorescu (2001), Jones and Lamont (2002), Cohen, Diether, and Malloy (2007)). But there is surprisingly little direct evidence that short sellers know what they are doing. There is indirect evidence in the existing literature. For example, Aitken et al. (1998) show that in Australia, where some short sales were immediately disclosed to the public, the reporting of a short sale causes prices to decline immediately. Some authors (but not all) find that short interest predicts fu- ture returns. 1 Dechow et al. (2001) find that short sellers generate positive

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/251496cc19fb15d0e8ff85edb119371bcbd55c81

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Citations in the corpus

Informed trading before analyst downgrades: Evidence from short sellers (2010, neutral): “We acknowledge that this sample period is relatively short, which could impact the generalizability of our results Boehmer, Jones, and Zhang (2008) have a large and detailed but proprietary data set that applies to short and other trades on the NYSE for the 2000–2004 interval.”
How are shorts informed (2012, methodology): “Several papers find that abnormal short selling unconditionally predicts lower future returns (see, e.g., Senchack and Starks, 1993; Asquith, Pathak and Ritter, 2005; Boehmer, Jones, and Zhang, 2008).”
How are Shorts Informed? Short Sellers, News, and Information Processing (2012, positive): “The results suggest that, on average, the previously documented information advantage of short sellers (see, e.g., Boehmer, Jones, and Zhang, 2008; Asquith, Pathak, and Ritter, 2005) does not stem from an ability to anticipate news.”
Rumor Has It: Sensationalism in Financial Media (2015, background): “In particular, Boehmer, Jones, and Zhang (2008) and Kelley and Tetlock (2014) present evidence that short sellers, including retail traders, are informed.”
Do Hedge Funds Manipulate Stock Prices (2012, positive): “In a sense, our paper complements the latter study, since a large fraction of short selling volume is attributed to hedge funds (Boehmer, Ekkehart, and Jones 2008 and Goldman Sachs 2010).”
Are Institutions Informed About News (2015, methodology): “As in our analysis of aggregate institutional trading volume and news, we examine event-study and regression evidence.”
The Good News in Short Interest (2010, methodology): “Using proprietary data, Boehmer, Jones, and Zhang (2008) examine daily short sale flow executed at the NYSE over the period January 2000 through April 2004.”
Modelling and Forecasting Multivariate Realized Volatility (2011, background): “Boehmer, Jones & Zhang (2008) reveals that on the NYSE only up to 2% of short”
Competition of the Informed: Does the Presence of Short Sellers Affect Insider Selling? (2015, background): “…that short sellers possess superior information: they are able to identify overvalued stocks (e.g., Desai et al., 2002; Cohen, et al., 2007; Boehmer et al., 2008; Diether et al., 2009; Boehmer, et al., 2010) or are particularly good at processing information (e.g., Engelberg et al., 2012).”
Tracking Retail Investor Activity (2020, background): “Kaniel, Saar, and Titman (2008), Kaniel et al. (2012), and Boehmer, Jones, and Zhang (2008) use proprietary account-type data from the NYSE during the early 2000s.”
Price Efficiency and Short Selling (2011, neutral): “However, an increase in the fee (i.e. the 2Many articles support this view, such as Diamond and Verrecchia (1987); Boehmer, Jones, and Zhang (2008); Bris, Goetzmann, and Zhu (2007); Bris (2008); Boehmer, Jones, andZhang (2009); Charoenrook and Daouk (2009); Kolasinski, Reed, and Thornock (2009).”