Short Selling and the Price Discovery Process

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

Author(s):

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.

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

See Also

The EDHEC case study “Maison Maille” won the 2018 Emerald Best Case Award
News
- 17-05-2019
We are very proud to announce that “Maison Maille: making mustard aspirational to...
EDHEC Tomorrow - Horizon 2030
News
- 16-05-2019
As part of the preparation of the 2020-2025 strategic plan, we wish to open the debate...
Start-Up and Innovation in the Sun – Welcome to the Cote d’Azur!
News
- 15-05-2019
The Cote d’Azur in the south of France is well-known for its warm climate, 120...
Entrepreneurship Track: Hands-On Learning, Insights & Innovation by Renato Figueroa, MBA Candidate
News
- 15-05-2019
A unique feature of the Global MBA programme at EDHEC is the specialization track....