Informed Trading Before Analyst Downgrades: Evidence from Short Sellers

Christophe, Stephen E.; Ferri, Michael G.; Hsieh, Jim

doi:10.2139/ssrn.1108162

Cited by 71 publications

(22 citation statements)

References 34 publications

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“…Asquith and Meulbroek (1996) and Desai et al (2002) find that stocks that are highly shorted in one month tend to underperform in the next month, and Diether, Lee, and Werner (2009) find that short sellers appear to take advantage of short‐term overreaction in stock prices. Christophe, Ferri, and Angel (2004), Christophe, Ferri, and Hsieh (2009), and Liu, Ma, and Zhang (2008) find that short selling increases before negative earnings announcements, analyst downgrades, and mortgage loss‐related write‐downs. In contrast, Daske, Richardson, and Tuna (2005) do not find any predictive ability of short selling, and Henry and Koski (2010) find no evidence of informed short selling around SEO announcements.…”

Section: Related Researchmentioning

confidence: 98%

Short Sellers and Financial Misconduct

Karpoff¹,

Lou²

2010

The Journal of Finance

534

244

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We examine whether short sellers detect firms that misrepresent their financial statements, and whether their trading conveys external costs or benefits to other investors. Abnormal short interest increases steadily in the 19 months before the misrepresentation is publicly revealed, particularly when the misconduct is severe. Short selling is associated with a faster time-to-discovery, and it dampens the share price inflation that occurs when firms misstate their earnings. These results indicate that short sellers anticipate the eventual discovery and severity of financial misconduct. They also convey external benefits, helping to uncover misconduct and keeping prices closer to fundamental values. Copyright (c) 2010 the American Finance Association.

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Section: Related Researchmentioning

confidence: 98%

Short Sellers and Financial Misconduct

Karpoff¹,

Lou²

2010

The Journal of Finance

534

244

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“…Thus, to proceed, we define a standardized short selling measure that allows for a proper cross‐sectional comparison. The literature usually standardizes short volume by either: 1) shares outstanding (Christophe, Ferri, and Hsieh, 2010), or 2) total volume (Diether et al, 2009b). The former metric performs well in capturing deviations in unconditional short volume, whereas the latter metric relates fluctuations in short volume to long volume.…”

Section: Short Selling During Price Reversalsmentioning

confidence: 99%

Short Selling and Intraday Price Pressures

Shkilko

Ness

2012

Financial Management

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We study episodes of significant intraday downward price pressures in individual stocks and find that price declines during such episodes are driven mainly by liquidity demanding nonshort volume. Although short sellers during these price pressure episodes are also active and somewhat exacerbate the magnitude of price declines, their influence on prices is secondary to that of nonshort sellers. As such, our findings are inconsistent with the recently reignited allegations of systematic trading abuses caused solely by short sellers and might shed light on the debate regarding the need to reinstitute short selling restrictions.

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“…In contrast, several early studies focus on shorter term periods (several days) and the evidence in that case is mixed. For example, short sellers are shown to increase their positions just a few days before announcements of unfavorable earnings news (Christophe, Ferri, and Angel, ), analysts’ downgrades (Christophe, Ferri, and Hsieh, ), and large insider sales (Khan and Lou, ). In contrast, Engelberg, Reed, and Ringgenberg () find that the highest shorting volume occurs during the day of public news announcements rather than the preceding 10 trading days.…”

mentioning

confidence: 99%

Short Interest, Returns, and Unfavorable Fundamental Information

Akbas¹,

Boehmer²,

Erturk³

et al. 2016

Financial Management

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Several months before information becomes public, the level of short interest contains value-relevant information about publicly-traded corporations: short interest predicts future bad news, negative earnings surprises, and downward revisions in analyst earnings forecasts. This informational content is stronger for stocks that are harder to short. We also show that nearly half of the well-known cross-sectional relation between short interest and future stock returns is related to future changes in firms' value-relevant information. Our results suggest that short interest predicts future returns, in part, due to short sellers' ability to uncover unfavorable information about firms.

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Informed Trading Before Analyst Downgrades: Evidence from Short Sellers

Cited by 71 publications

References 34 publications

Short Sellers and Financial Misconduct

Short Sellers and Financial Misconduct

Short Selling and Intraday Price Pressures

Short Interest, Returns, and Unfavorable Fundamental Information

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