Do Short Sellers Front-Run Insider Sales?

By Mozaffar Khan, Hai-fan Lu. 2013

121 citations recorded by the source corpus.

ABSTRACT: We study the behavior of short sellers as informed market participants and examine potential sources of their information. Using a newly available dataset with high-frequency short sales data, we find evidence of significant increases in short sales immediately prior to large insider sales, but not prior to small insider sales. We examine a number of explanations that the increase in short sales is driven by public information, either about the firm or about the impending insider sale. The evidence is inconsistent with these explanations, but is consistent with front-running facilitated by leaked information. The front-running appears to be concentrated in firms with poor accounting quality, suggesting that information about a large insider sale reinforces short sellers' adverse opinion about firm value when accounting quality is poor. JEL Classifications: G14, G18, G30, M41

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/ca923a3e9af477668b5e89b9c5e2a9a61e6e34c9

How researchers see this paper

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In Accounting

1. Weibiao Xu
2. Massimo Massa
3. Wenlan Qian
4. H. Zhang

In Finance

1. Weibiao Xu
2. Massimo Massa
3. Wenlan Qian
4. H. Zhang

Citations in the corpus

• Competition of the Informed: Does the Presence of Short Sellers Affect Insider Selling? (2015, background): “Indeed, Khan and Lu (2013) document that short sellers can even front-run insiders due to information leakage, which would even further enhance the preemptive incentives for truly informed insiders in our contents.”