Short Selling and the Price Discovery Process

By Ekkehart Boehmer, J. Wu. 2013

658 citations recorded by the source corpus.

We show that stock prices are more accurate when short sellers are more active. First, in a large panel of NYSE-listed stocks, intraday informational efficiency of prices improves with greater 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, short sellers change their trading around extreme return events in a way that aids price discovery and reduces divergence from fundamental values. These results are robust to various econometric specifications, and their magnitude is economically meaningful. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Subfields: Accounting, Finance, Marketing

View Paper: https://www.semanticscholar.org/paper/afebbca17a0b04657f4ec9d184cb3f89cb23e082

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Citations in the corpus

Short Selling and Earnings Management: A Controlled Experiment (2016, positive): “To test this hypothesis, we follow Boehmer and Wu (2103)’s methodology and examine firms’ returns following earnings surprises during the pilot program.”
In Short Supply: Short Sellers and Stock Returns (2015, positive): “At the intraday level, short-sale flows improve the informational efficiency of intraday prices (Boehmer and Wu 2013).”
Big Data as a Governance Mechanism (2019, positive): “Consistent with these theoretical predictions, multiple studies find that short sellers increase the informational efficiency of prices (e.g., Dechow et al. 2001; Karpoff and Lou 2010; Boehmer and Wu 2012) and discipline managers’ behavior (e.”
Informed trading and price discovery before corporate events (2015, neutral): “5 Novel exceptions are Kumar and Seppi (1994), Chakravarty and Holden (1995), Kaniel and Liu (2006), Goettler, Parlour, and Rajan (2009), Boulatov and George (2013) , and Rosu (2014) .”
Competition of the Informed: Does the Presence of Short Sellers Affect Insider Selling? (2015, background): “5 If we further look into the details of our final sample, an average of 1,361 stocks per month come from NYSE during the period of Jul 2006 to Nov 2011, which is consistent with Boehmer and Wu (2013).”
It Depends on Where You Search: Institutional Investor Attention and Underreaction to News (2017, background): “Boehmer and Wu (2013) use short-selling volume as a proxy for investor attention and show that there is little drift when there are negative earnings surprises and short selling volume is high.”