Short Selling and the Price Discovery Process

We show that stock prices impound more information when short sellers are more active.


Ekkehart Boehmer

Lundquist College of Business, University of Oregon and Affiliate Professor, EDHEC Business School

Julie Wu

Department of Banking and Finance, Terry College of Business, University of Georgia, Athens

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, our results highlight the important role that short sellers play in the price discovery process.

(-1.00 B)
Type: Working paper
Date: le 02/05/2011
Research Cluster : Finance

See Also

EDHEC-Risk Instute paper on value in sovereign bond markets accepted by the Journal of Fixed Income
- 12-09-2019
We are pleased to enclose an EDHEC-Risk Institute research article published in the...
EDHEC Faculty welcomes Oxford professor Renée B. Adams for a reseach seminar
- 11-09-2019
On September 12, 2019, EDHEC faculty will be delighted to welcome Oxford professor...
Riccardo Rebonato will unveil the results of the 12th EDHEC-Risk European ETF & Smart Beta Survey on Sept 23 in London
- 03-09-2019
Riccardo Rebonato, Professor of Finance, EDHEC Business School, EDHEC-Risk Institute,...
Launch of the
- 03-09-2019
EDHEC Business School and Scientific Beta have announced the launch of the “Advanced...